Practical  Banking 


NEW  AND  ENLARGED 


ALBERT  S.  BOLLES,  Ph.  D.,  LL.  D. 


LECTURER     ON    BANKING    IN    THE    UNIVERSITY    OF    PENNSYLVANIA   AND    ON 

COMMERCIAL  LAW   AND   BANKING   IN  HAVERFOKD    COLLEGE  ;    AUTHOR 

OF     "BANKS     AND     THEIR     DEPOSITORS."      "BANK     OFFICERS," 

"BANK    COLLECTIONS,"    "THE   NATIONAL   BANK    ACT 

AND    ITS    JUDICIAL  MEANING,"   AND    "THE 

FINANCIAL    HISTORY    OF    THE 

UNITED   STATES." 


ELEVENTH   EDITION. 

Revised  and  Greatly  Enlarged  with  Many  New  Forms. 


Price,   $3.00  Postpaid. 


INDIANAPOLIS: 
Levey  Bko's  &  Co.,  Inc.,  Bank  Stationers. 

PUBLISHEKS. 

mi, 


"PRACTICAL     BANKING," 

New  and  Enlarged. 
Copyright  Renewed,  1898, 

BY 

LEVEY  BRO'S  &  CO.,  Inc.,  INDIANAPOLIS,  IND., 
BANK     STATIONERS. 


0 

\ 


^,  ? 


TO 

IaYman  J.  Gagr, 

THIS  BOOK  IS  DEDICATED 

AS  A  TOKEN  OF  THE  AUTPIOR'S  REGARD  FOR  HIS  FRIENDSHIP 

AND  ADMIRATION  FOR  HIS  RARE  UNION 

OP  A  KNOWLEDGE  OF 

THE  HISTORY  AND  THEORY  OF  BANKING  AND  FINANCE 

WITH  EMINENT  SUCCESS  AS  A  BANKER 


f  AND  FINANCIER, 


S88393 


PREFACE 

TO  THE  ELEVENTH  EDITIOX. 


In  the  preface  to  the  first  edition  was  fully  set  forth 
the  origin  of  this  work.  As  there  explained,  a  consider- 
able portion  of  Part  I,  relating  to  Banks  of  Deposit  and 
Discounts,  was  derived  from  the  Bankers'  Commonplace 
Book,  a  work  written  by  an  experienced  bank  officer  and 
possessing  great  merit.  Since  his  day,  however,  many 
changes  have  been  introduced  into  banking,  and  his  work, 
though  still  worth  reading,  does  not  adequately  deal  with 
the  conditions  that  now  confront  the  banking  world. 
So,  nearly  all  taken  from  that  work  has  been  omitted, 
except  a  part  of  the  chapter  relating  to  the  duties  of  the 
president  and  a  few  paragraphs  pertaining  to  directors 
and  discounting. 

Most  of  the  chapters  in  Part  II,  treating  of  savings 
banks,  were  written  by  Mr.  Charles  E.  Sprague,  president 
of  the  Union  Dime  Savings  Institution  of  New  York,  and 
these  have  been  revised  by  him  and  contain,  it  is  believed, 
every  idea  in  the  best  savings  bank  practice. 

The  Author. 


CONTENTS. 


PART  I. 

DEPOSIT  AXD  DISCOUNT  BANKING. 

Chapter  I.  page 

The  Origin,  Classification  and  Utility  of  Banks 3 

Chapter  II. 
The  History  of  State  and  National  Banking .       7 

Chapter  III. 
The  Organizing  of  a  Bank 21 

Chapter  IV. 
Shareholders  and  the  Transfer  of  Stock 35 

Chapter  V. 
Annual  Meetings.     Election  of  Officers 46 

Chapter  VI. 
The  Circulation 49 

Chapter  VII. 
Deposits  and  Depositors 62 

Chapter  VIII. 
Directors  and  Loans 76 

Chapter  IX. 
The  President 122 

Chapter  X. 
The  Cashier 135 

Chapter  XI. 
The  Paying  Teller 141 

Chapter  XII, 
The  Receiving  Teller 169 

Chapter  XIII. 
The  Note  Teller 180 

Chapter  XIV. 
The  Discount  Clerk 184 


TH  CONTENTS. 

Chapter  XV.                                          page 
Collections 188 

Chapter  XVI. 
Correspondence 202 

Chapter  XVII. 
The  Keeping  of  the  Lawful  Money  Reserve  by  National  Banks  205 

Chapter  XVIII. 
The  Bookkeeper 209 

Chapter  XIX. 
The  Runner  and  Porter 24.1 

Chapter  XX. 
Dealings  in  Exchange 243 

Chapter  XXI. 
State  Banks : , 252 

Chapter  XXII. 
Private  Banks  • 255 

Chapter  XXIII. 
Country  Banking 259 


PART  II. 

SAVINGS  BANKS. 

Chapter  I. 
Utility  of  Savings  Banks   265 

Chapter  II. 
Janitor 271 

Chapter  III. 
The  Depositor 272 

Chapter  IV. 
The  Receiving  Teller 279 

Chapter  V. 
The  Paying  Teller 285 

Chapter  VI. 
The  Bookkeeper    289 

Chapter  VII. 
The  Treasurer 294 


CONTENTS.  Viii 

Chapter  VIII.                                         page 
The  Secretary 299 

Chapter  IX. 
The  President 314 

Chapter  X. 
The  Board  of  Trustees 315 

Chapter  XI. 
The  Attorney 318 

Chapter  XII. 
State  Supervision  and  Reports 321 

Chapter  XIII. 
How  Investments  Should  be  Made 326 

Chapter  XIV. 
The  Small  Savings  Bank 332 

Chapter  XV. 
On  Making  and  Withdrawing  Deposits  in  a  Large  Savings  Bank 336 


PART  III. 

CLEARING-HO  USES. 

Chapter  I. 
Origin  and  Utility  of  the  Clearing-house 845 

Chapter  II. 
Organization  and  Mechanical  Arrangements 353 

Chapter  III. 
Preparation  of  the  Exchange 356 

Chapter  IV. 
How  Clearings  are  Made 360 

Chapter  V. 
How  Outside  Banks  Make  Clearings 365 

Chapter  VI. 
Payment  of  Balances 367 

Chapter  VII. 
Clearing-house  Certificates     . .      370 

Chapter  VIII. 
The  Records  Kept  and  their  Uses  873 


IX  CONTENTS. 

Chapter  IX.  page 

Fines ;.,.,,„.,,-,....,...  377 

Chapter  X. 

History  of  the  New  York  Clearing  House » . .  , 878 

Chapter  XI. 
Clearing-liouses  Outside  New  York ............  o ..  .    383 

Chapter  XII. 

Foreign  Clearing-houses ...........,,.,  395 

Chapter  XIII. 
Country  Clearings , . . .  405 


PART  IV. 

LOAN  AND  TRUST  COMPANIES. 

Chapter   I. 
History  and  Scope  of  Loan  and  Trust  Companies 413 

Chapter  II. 

How  Business  is  Conducted , . . .  415 

Chapter  III. 
The  Po'vvers  of  Trust  Companies 422 


PART  V. 

BANK  LITERATURE. 

Chapter   I. 
Bank  Literature 431 

Chapter  II. 
Bibliography  of  Works  on  American  Banking -      . .  -    .  437 


APPENDIX. 

Banking  as  a  Profession  for  Young  Men 463 

Advice  to  Depositors 467 

Suggestions  to  Young  Cashiers  on  the  Duties  of  Their  Profession 470 


PART  I. 

DEPOSIT  AND  DISCOUNT  BANKING. 


PRACTICAL  BANKING. 


CHAPTER  I. 


THE  ORIGIN,  CLASSIFICATION  AND  UTILITY  OF  BANKS. 


The  term  bank  is  supposed  to  be  derived  from  banco,  the  Italian 
word  for  bench,  the  I>onibard  Jews  in  Italy  having  benches  in  the 
marlcet-plnce  where  they  exchanged  money  and  bills.  When  a  banker 
failed,  his  bench  was  broken  by  the  people,  and  he  was  called  a 
bankrupt. 

Tills  derivation  of  the  term,  however,  is  probably  wrong.  "The 
true  original  meaning  of  banco,"  says  MacLeod,*  "is  a  heap,  or  mound, 
and  this  word  was  metaphorically  applied  to  signify  a  common  fund,  or 
joint  stock,  formed  by  the  contribution  of  a  multitude  of  persons." 

A  brief  account  of  the  first  banking  operations  in  Venice  Avill  dispel 
the  haze  enveloping  this  subject.  In  1171  the  financial  condition  of 
Venice  was  strained  in  consequence  of  the  wars  in  which  the  people 
were  engaged.  The  great  council  of  the  republic  finally  determined  to 
raise  a  forced  loan.  Every  citizen  was  obliged  to  contribute  the 
hundredth  part  of  his  possessions  to  the  state,  receiving  therefor 
interest  at  the  rate  of  five  per  cent.  The  public  revenues  were  mort- 
gaged to  secure  the  interest,  and  commissioners  were  appointed  to  pay 
the  interest  to  the  fundholders  and  to  transfer  the  stock.  The  loan  h.ad 
several  names  in  Italian,  Corapera,  Mutuo,  but  the  most  common  was 
Monte,  a  joint  stock  fund.  Afterward,  two  more  loans  were  contracted, 
and  in  exchange  for  the  money  contributed  by  the  citizens,  the  com- 
missioners gave  stock  cortificates  bearing  interest,  and  which  could  be 
sold  and  transferred. 


♦Principles  of  Economic  Philosophy,  vol.  1,  p.  547. 


4  PRACTICAL   BANKING. 

At  this  period  the  Germans  were  masters  of  a  great  part  of  Italy, 
and  the  German  word  Banck  came  into  use  as  well  as  its  Italian 
equivalent  Monte.  The  Italians  ere  long  changed  Banck  into  Banco, 
and  the  public  loans  or  debts  were  called  jNIonti  or  Banchi.  Thus  an 
English  writer,  Benbrigge,  who  wrote  in  1G46,  mentioned  the  "tliree 
bankes"  at  Venice,  by  which  he  meant  the  three  public  loans,  or  Monte, 
that  we  have  described.  Likewise  Count  Cibrario,  who  wrote  a  work 
on  Political  Economy  in  the  Middle  Ages,  says:  "It  is  known  that  the 
first  Bank,  or  Public  Debt,  was  erected  at  Venice  in  1171."  Other  proof 
of  the  same  nature  might  be  added  to  show  that  Banco  in  Italian  meant 
a  fund  formed  by  several  contributions;  and  that  tlie  Bank  of  Venice 
was  really  the  first  funding  system,  or  system  of  public  debts. 

"A  banker,"  says  Gilbart,  "is  a  dealer  in  capital,  or,  more  properly, 
a  dealer  in  money.  He  is  au  intermediate  party  between  the  borrower 
and  the  lender."  This  definition,  however,  only  applies  to  a  banker 
who  receives  and  lends  tlie  money  of  others;  very  generally  he  is  the 
owner  of  money  which  lie  also  lends.  Indeed,  if  he  were  not,  others 
would  not  be  inclined  to  deposit  their  money  with  him.  Their  con- 
fidence in  his  integrity  and  ability  is  measured  by  his  wealth.  Tliis  is 
a  guaranty  that  theirs  will  be  prudently  used  and  returned. 

An  incorporated  or  public  bank,  like  a  banker,  is  an  institution 
for  receiving  and  lending  money.  This  always  has  a  capital  of  its  own 
to  lend,  besides  the  deposits  received  fi'om  individuals. 

Banks  are  classified  in  several  ways.  The  first  division  is  into 
private  and  public  or  incorporated  banks.  A  private  bank  is  conducted 
by  an  individual,  or  by  several  individuals  as  partners.  It  was  the 
earliest  form  of  banlcing  and  the  capital  they  used  belonged  to  them- 
selves. The  practice  of  receiving  deposits  of  money  from  others  and 
lending  them  did  not  l)egin  until  a  later  period. 

Public  or  incorporated  banks  are  divided  into  two  classes:  National 
banks  organized  and  existing  liy  tlie  laws  of  the  United  States,  and 
state  banks,  authorized  and  doing  business  by  the  laws  of  the  states  in 
which  they  are  located.  The  latter  may  be  divided  into  three  classes: 
banks  of  deposit  and  discount,  savings  banks,  and  trust  companies. 

Having  classified  these  institutions,  their  utility  may  be  considered.* 
One  of  their  earliest  uses  was  that  of  a  depository  for  money.  Not 
many  years  ago  a  Western  farmer  received  nearly  ten  thousand  dollars 
in  specie  from  the  government  in  payment  for  bonds.  Not  regarding  a 
bank  as  a  safe  place  for  depositing  his  gold,  he  put  it  in  the  bottom  of 
a  barrel  in  his  wood-shed,  filling  it  nearly  full  of  ashes,  and  the 
remainder  with  straw,  making  a  nest  at  the  top  which  he  filled  with 


*0n  this  subject  Mr.  George  S.  Coe,  president  of  the  American 
Excliange  National  Bank,  delivered  a  notewortliy  address  before  the 
Aniericnu  Bankers'  Association,  in  18S2,  answering  the  question.  "Vv^'hat 
Important  Function  Do  We,  as  Bankers,  Perform?"  See  Banker's 
Magazine,  vol.  37,  p.  170. 


THi;   ORIGIN,    CLASSIFICATION   AND   UTILITY   OF  BANKS.  5 

eggs,  and  put  iu  the  custody  of  a  scttiug  beu.  After  waiting  a  couple 
of  weelcs  ho  thought  one  Sunday,  when  having  nothing  else  to  do,  that 
he  would  examine  his  highly  original  safe  in  the  wood-shed.  The  old 
hen  was  decidedly  cross,  and  did  not  enjoy  his  presence.  Still  she  felt 
batter  than  he  did  as  soon  as  he  had  plunged  his  arm  down  the  side  of 
the  barrel  and  found  that  some  one  had  kindly  relieved  him  of  his 
gold.  Probably  he  will  think  more  highly  of  banks  as  places  of  deposit 
in  the  future.  The  need  of  a  safe  place  of  deposit  gare  rise  to  ihe 
leaving  of  valuables  with  the  goldsmiths  of  London.  Robberies  would 
rapidly  multiply  if  much  money  was  kept  in  houses.  The  depositing  of 
it  with  banks  spares  many  a  house  from  the  invasion  of  robbers. 

A  profit  is  derived  from  the  payment  of  interest  on  deposits.  It 
is  true  that  in  this  country  the  practice  has  not  become  general  among 
banks  of  deposit  and  discount  to  pay  interest  on  deposits,  but  the 
practice  is  increasing  and  will  probably  become  as  general  as  it  is  in 
the  leading  European  countries. 

Again,  the  payment  of  interest  on  deposits  is  a  stimulus  to  accu- 
mulate money.  Were  there  no  savings  banks,  a  large  portion  of  the 
savings  deposits  in  them  would  never  have  been  collected  and  saved. 
Probably  the  majority  of  these  depositors  have  no  thought  of  collecting 
enough  to  buy  a  bond  or  a  few  shares  of  stock.  Such  a  process  of 
saving  is  too  elaborate  for  them.  But  when  a  way  is  provided  for 
adding  to  their  savings  by  simply  depositing  their  money  in  a  bank, 
thousands,  nay,  millions,  of  persons  in  our  country  have  availed  them- 
selves of  the  opportunity. 

An  important  service  performed  by  banks  is  the  lending  of  money 
to  persons  who  wish  to  borrow.  Loans  are  made  chiefly  to  persons 
engaged  in  manufactures,  trade,  commerce,  and  other  business  pur- 
suits. Money  is  especially  needful  to  them  to  conduct  their  enterprises. 
Without  it  they  could  not  maintain  their  place  in  the  world  of  business. 
The  credit  that  some  mercantile  houses  have  is  worth  more  to  them 
than  the  capital  they  actually  possess. 

Another  utility  is  that  banks  save  the  transmission  of  money  from 
one  part  of  the  world  to  another.  Not  only  is  the  risk  of  loss  from 
robbery  and  other  accidents  avoided,  but  the  money  is  kept  in  more 
active  circulation.  Were  it  actually  sent  from  place  to  place  to  effect 
all  the  payments  that  are  daily  made,  a  large  amount  would  be  locked 
up  in  the  process  of  transportation,  which  otherwise  might  be  more 
actively  employed. 

There  is  a  saving  of  time  in  paying  large  sums  by  check  or  bills  of 
exchange.  To  count  the  money  would  be  a  long  process  in  making  the 
many  heavy  payments  of  our  time. 

There  is  less  danger  of  error  when  checks  are  used  than  when  money 
is  paid.  Of  course,  there  are  some  risks  attending  the  use  of  checks. 
But  in  paying  with  money  there  is  also  the  risk  of  getting  counterfeits, 
light  weight,  or  otherwise  defective  coin. 


G  PRACTICAL   BANKING. 

Besides,  checks  constitute  a  good  record  of  one's  expenditure.  If 
an  individual  deposits  all  the  money  he  receives  with  a  banli,  and 
draws  it  out  by  checks,  his  check-book  contains  the  story  of  his  income 
and  expenditure.  For  persons  who  do  not  have  strict  business  habits, 
this  mode  of  keeping  their  money  and  paying  their  bills  is  especially 
worth  observing. 

A  bank  account  is  very  useful  if  a  payment  is  disputed.  Individuals 
do  not  always  take  receipts  for  the  money  they  pay,  and  even  if  they 
do,  sometimes  lose  them.  If  a  bill  is  paid,  but  no  proof  of  the  fact  can 
be  furnished  and  payment  is  again  demanded,  too  often  it  must  be  paid 
a  second  time.  But  if  a  check  for  the  bill  is  given,  this  is  the  best 
kind  of  evidence  of  payment. 

If  one  has  an  account  with  a  bank  it  is  often  a  good  channel  for 
getting  useful  business  information.  If  one  has  money  to  collect  or  to 
remit,  a  banker,  when  asked,  will  state  the  best  way  of  proceeding. 
Not  infrequently  banli  officials  give  valuable  advice  pertaining  to 
investments  and  other  matters. 

A  bank  is  a  means  for  organizing  capital  whereby  its  full  power 
may  be  utilized.  The  function  of  a  banlc  in  storing  up  capital,  and  thus 
increasing  its  power,  may  be  likened  to  the  damming  of  a  stream.  By 
storing  up  the  vagrant  force  it  may  minister  in  a  very  potent  way  to 
advance  the  material  prosperity  of  man.  In  like  manner,  banks,  by 
collecting  the  numberless  little  rills  of  capital,  which  otherwise  would 
minister  much  less  effectively  to  human  needs,  perform  a  most  valuable 
service  to  couimerce,  for,  by  accumulating  them,  a  great  force  is 
created  which  is  always  needed  in  production  and  exchange. 


THE   HISTORY   OF   STATK   AND   NATIONAL   BANKING. 


CHAPTER  II. 
THE  IIISTOIIY  OF  STATE  AND  NATIONAL  BANKING. 

A  brief  outline  of  the  origin  and  principal  changes  in  American 
banking  is  a  fitting  introduction  to  a  description  of  the  business  itself. 
And  as  state  banking  is  the  older,  and  forms  the  basis  of  the  national 
banking  system,  we  shall  begin  with  a  description  of  the  Bank  of 
North  America,  founded  in  Philadelphia  in  1782,  during  the  dark  days 
of  the  Revolution.  Its  creator  was  Robert  Morris,  the  superintendent 
of  finance,  the  one  man  whose  personal  credit  and  financial  ability 
shone  conspicuously  amid  his  siu'roundings.  Believing  that  such  an 
institution  would  minister  effectively  to  the  pressing  needs  of  the  gov- 
ernment, a  capital  was  formed  of  $400,000,  and  of  this  amount,  .$8."5,000 
was  paid  in  specie.  The  bank  was  incorporated  bj^  the  name  of  the 
President,  Directors,  and  Company  of  the  Bank  of  North  America;  and 
the  states  were  recommended  to  pass  laws  forbidding  the  creation  of 
any  rival  institution  during  the  war.  Its  notes,  which  were  payable  on 
demand  in  gold  and  silver,  were  receivable  in  payment  of  taxes, 
duties  and  debts  of  the  United  States.  To  the  superintendent  was 
given  the  right  of  inspection.  The  people  had  been  deluded  with  such 
copious  supplies  of  paper  money  by  the  states  and  the  Continental 
Congress  that,  notwithstanding  every  effort  to  circulate  the  issues  of 
the  bank  at  par,  they  fell  from  ten  to  fifteen  per  cent,  below  in  the 
Eastern  states.  After  a  few  months  the  credit  of  the  bank  revived, 
and  its  notes  were  regarded  with  moi'e  favor.  No  wonder  that  the 
people,  after  their  costly  experience  with  the  state  and  continental 
issues,  feared  this  now  paper  creation.  They  wanted  no  more  paper 
money  until  the  remembrance  of  their  losses  from  taking  it  had 
passed  away.  Had  ]Morris  not  been  watchful  to  preserve  the  specie 
foundalion  of  the  bank,  and  redeemed  its  issues  whenever  they  were 
presented,  its  life  would  have  been  short.  Yet  its  supply  of  specie 
was  small,  and  on  more  than  one  occasion  during  its  early  days,  persons 
were  followed,  after  getting  specie  for  their  notes,  and  besought  to 
return  it.  To  strengthen  the  belief  of  visitors  in  its  metallic  resources, 
clerks  were  employed  to  raise  kegs  of  coin  from  the  cellar  in  ways 
that  could  be  easily  seen  and  by  less  obvious  ways  put  them  back 
again.  This  revelation  may  make  a  somewhat  unpleasant  impression 
on  our  readers  concerning  the  methods  of  the  managers  of  the  bank, 


8  PRACTICAL  BANKING. 

but  those  were  serious  times,  and  no  one  ever  suffered  from  the 
practice  of  this  novel  method  to  create  confidence  in  the  banli's  ability 
to  pay  its  obligations. 

As  soon  as  confidence  was  fully  gained,  the  course  of  the  bank 
was  free  from  difficulty.  It  divided  handsome  profits  that  ere  long 
were  a  cause  of  jealousy  to  outsiders.  This  grew  until  they  united 
and  attempted  to  organize  another  bank.  The  Bank  of  North  America 
disputed  the  field.  Its  opponents  were  strong  enough  to  effect  the 
repeal  of  the  charter  that  had  been  granted  by  the  legislature  of 
Pennsylvania,  yet  the  bank  continued  to  thrive  under  the  charter 
previously  granted  by  the  Continental  Congress.  Public  sentiment,  to 
some  extent,  favored  the  opponents  of  the  existing  bank,  for  they 
feared  its  power.  In  those  days  a  corporation  was  a  monopoly,  and 
though  in  form  was  similar  to  later  corporations,  greatly  differed  from 
them  in  spirit  and  purpose.  The  modern  corporation,  except  in  a  few 
cases,  is  no  longer  a  monopoly  like  the  Bank  of  England,  or  the 
monopolies  granted  by  the  Stuart  kings.  Privileges  are  no  longer 
granted  which  others  cannot  obtain  on  similar  terms.  The  contest, 
however,  continued,  many  believing  that  the  public  would  fare  better 
with  two  banks  than  with  only  one.  Suddenly  the  strife  ended;  the 
stock  of  the  Bank  of  North  America  was  Increased  and  taken  by  the 
projectors  of  the  rival  bank,  and  for  several  years  longer  it  alone 
continued  to  occupy  the  field. 

The  next  bank  established  in  the  United  States  was  the  Bank  of 
New  York— the  creation  of  Hamilton.  It  was  chartered  in  1784.  Its 
success  was  immediate,  as  one  might  imagine,  with  no  rival  in  that 
city.  Its  great  profits,  however,  tempted  others  to  petition  to  the  legisla- 
ture for  authority  to  establish  another  bank.  For  several  years  the 
attempt  was  annually  made,  defeated  and  renewed.  The  leading  spirit 
in  the  movement  was  Aaron  Burr,  Hamilton's  great  rival.  Finally 
Burr  introduced  into  the  legislature  the  charter  of  a  water  company, 
to  supply  the  people  living  in  New  York  city  with  water.  A  very 
worthy  purpose,  surely;  what  legislature  could  hesitate  to  grant  such 
a  request?  The  charter  contained  an  Innocent  clause  authorizing  the 
company  to  lend  all  the  money  received  not  needed  in  its  business  to 
whoever  desired  it.*  With  this  modest  authority  the  water  company 
began  to  engage  in  banking.  It  did  indeed  build  a  well  and  lay  some 
pipes;  and  even  to  this  day  an  annual  Inspection  of  the  water  supply 
is  made  by  the  directors  followed  by  a  dinner. 


*"Under  this  charter,  which  is  still  in  operation,  the  Bank  of  the 
Manhattan  Company  must  be  prepared  at  any  time  to  furnish  to  the 
city  of  New  York  450  gallons  of  water  per  minute  from  their  well.  If 
at  any  time  it  should  fail  to  comply  with  the  terms  of  the  charter  in 
the  matter  of  furnishing  water  the  bank  would  either  have  to  go  out  of 
business  or  get  a  new  charter.  Naturally  the  Bank  of  the  Manhattan 
Company  takes  good  care  that  the  tank  shall  never  run  dry  nor  the 
pumping  machinery  cease  its  working."— New  York  Herald. 


THE   HISTORY   OF   STATE   AND   NATIONAL   BANKING.  9 

Thus  the  second  l)ank  in  New  York  city  came  into  being.  The 
difficulties  attending  its  birth  well  illustrate  the  tenacity  with  which 
corporations  in  those  early  days  sought  to  maintain  their  privileges. 
Human  nature  was  quite  the  same  then  as  now,  and  great  profits  were 
as  unwillingly  relinquished. 

The  next  bank  was  established  in  Boston,  the  Bank  of  Massachu- 
setts, in  1784,  which  is  still  among  the  leading  banks  of  that  city. 

Soon  after  the  organization  of  the  Federal  government,  Hamilton, 
who  was  Secretary  of  the  Treasury,  strongly  urged  the  creation  of  a 
national  bank.  Congress,  heeding  his  recommendation,  chartered  the 
Bank  of  the  United  States  in  1790.  Its  capital  was  fixed  at  .?10,000,000. 
One-fourth  of  all  the  subscriptions  was  to  be  paid  in  gold  and  in  silver, 
and  three-fourths  in  stock  issued  to  creditors  by  the  Federal  govern- 
ment for  its  indebtedness.  The  government  itself  subscribed  for 
$2,000,000,  that  was  to  be  paid  in  ten  annu.al  installments.  In  truth, 
the  bank  loaned  the  money  to  pay  them,  so  that  the  operation  simply 
consisted  in  borrowing  and  I'epayiug  the  money.  The  board  of  direct- 
ors consisted  of  twenty-five  persons.  The  bank  could  lend  on  real 
estate  security,  but  own  only  enough  whereon  to  build  banking-houses, 
or  such  as  might  be  conveyed  to  satisfy  loans  previously  made.  The 
bank  had  eight  branches  located  in  the  principal  places.  Only  citizens 
of  the  United  States  could  be  directors,  who  served  without  compensa- 
tion. The  bank  was  authorized  to  issue  circulating  notes  without 
any  regulation  concerning  the  quantity  of  specie  to  be  held  for  redeem- 
ing them.  They  were  redeemable  on  demand  in  gold  and  silver.  The 
bills  were  receivable  in  payment  of  all  debts  due  to  the  United  States, 
but  were  not  a  legal  tender  between  individuals.  The  stock  of  the  bank 
was  readily  taken  and  soon  commanded  a  premium.  The  average 
annual  di\idends  during  ils  twenty  years  of  existence  were  about  8^^ 
per  cent.  The  charter  ran  for  twenty  years,  ending  in  1811.  Besides 
other  sources  of  profit  were  the  deposits  of  the  government.  Its  need 
for  money  was  so  great  that  a  few  years  after  establishing  the  bank,  it 
parted  with  its  stock,  though  at  a  considerable  premium.  After  the 
country  had  been  swept  of  nearly  all  its  gold  and  silver  to  pay  the 
constantly  accruing  balances  of  trade  against  the  people,  the  stock  of 
the  bank  was  also  sent  abroad,  besides  a  large  amount  of  the  stock  of 
the  United  States  in  settlement  of  foreign  indebtedness.  When,  there- 
fore, the  bank  came  to  an  end,  the  larger  part  of  its  stock  was  held  in 
other  countries. 

During  these  twenty  years  many  state  banks  had  been  created. 
Their  capital  and  other  resources  were  much  smaller  than  those  of  the 
United  States  Bank,  nor  did  they  command  as  much  confidence.  Not 
only  did  it  furnish  a  good  currency,  which  was  everywhere  taken,  but 
also  set  the  pace  for  other  banks  to  follow.  Its  conservative  manage- 
ment was  a  check  on  those  bankers  who,  except  for  its  course  before 
their  eyes,  would  have  been  tempted  to  engage  in  wilder  operations 


10  PRACTICAL   BANKING. 

The  part  thus  silently  played  by  the  bank  has  too  often  been  overlooked 
in  describing  its  history. 

It  ceased  at  precisely  the  time  when  it  was  most  needed  by  the 
government.  War  with  Great  Britain  was  then  impending,  and  com- 
mon sense  should  have  taught  all  that  it  was  the  duty  of  the  govern- 
ment to  make  preparation,  not  less  in  providing  financial  supplies, 
than  in  equipping  the  army  and  navy.  But  the  enemies  of  the  bank 
had  never  been  silent  from  the  day  of  its  creation.  Its  safe  currency, 
its  honest  and  intelligent  management,  were  not  sufficient  arguments 
to  OA'crthrow  its  opponents.  So  the  lull  introduced  into  fhe  House  for 
the  renewal  of  its  charter  failed  by  a  single  vote.  The  fight  was  then 
renewed  in  the  Senate,  and  the  bank  lost  through  the  action  of  the 
vice-president,  whose  vote  was  cast  against  the  renewal  of  the  charter. 

No  sooner  had  its  life  ended  than  state  banks  sprang  up  everywhere 
like  the  well-known  luushrooms.  Many  of  the  charters  were  of  the 
loosest  character.  The  legislature  of  Pennsylvania  in  1S12  chartered 
twenty-five  i)auks  that  were  vetoed  l)y  Governor  Snyder,  who  clearly 
saw  the  evils  that  AA'ould  be  wrought  if  they  were  permitted  to  engage 
in  banking.  His  efforts  to  stay  the  tide  were  unavailing.  The  next 
legislature  contained  more  numerous  supporters  of  state  banks  than 
the  former,  and  forty-one  charters  were  granted.  A  ringing  veto  by 
the  governor  fell  on  hardened  ears,  the  charters  were  passed  notwith- 
standing his  veto,  and  thus  a  new  crop  of  banks  came  into  existence. 
In  other  cities  they  multiplied  in  the  same  manner.  It  is  needless  to 
add  tliat  they  conducted  their  business  in  a  thoughtless,  not  to  say 
corrupt,  manner.  Few  if  any  safeguards  surrounded  the  issue  of  their 
notes.  Loans  were  talvcn  on  the  flimsiest  security.  Soon  the  banks 
suspended  specie  payments,  and  their  notes  rapidly  depreciated  in  value; 
still  worse,  their  ruin  impaired  the  credit  of  the  government.  Its  loans 
were  taken  only  at  a  heavy  discount.  During  1813  and  1814  it  issued 
stocks  to  the  amount  of  over  $40,000,000,  that  were  to  run  twelve 
years  at  six  per  cent,  interest,  but  which  were  sold  at  a  discount  of 
fifteen  per  cent.  The  succeeding  year,  after  the  war  had  ended,  a 
loan  for  nearly  $9,000,000.  running  nine  years  and  liearing  seven  per 
cent,  interest,  was  negotiated  at  par,  while  another  loan  for  nearly 
$10,000,000,  running  only  nine  months,  at  six  per  cent.,  yielded  only 
ninety-five  per  cent,  of  its  face  value.  The  fact  may  also  be  recalled 
that  even  while  these  bonds  were  selling  below  par,  tlie  government 
received  paper  money  in  payment  worth  much  less  than  its  face,  so 
that  it  was  constantly  incurring  a  double  loss. 

In  consequence  of  tliis  disastrous  experiment  in  state  banking  Mr. 
Dallas,  who  had  been  appointed  Secretary  of  the  Treasury  in  1814, 
recommended  the  creation  of  another  bank  of  the  United  States.  ISIadi- 
son  was  then  President.  An  act  was  passed  limiting  the  charter  to 
twenty  years.  The  capital  was  fixed  at  ,$35,000,000,  one-fifth  of  which 
was  to  be  s-ubscribed  by  the  government,  payable  in  coin  or  in  stock 


THK   HISTORY   OF   STATE   AND   NATIONAL   BANKING.  11 

bearing  five  poi*  cent,  interest,  and  redeemable  at  its  pleasure.  The 
remaining  stock  was  to  be  subscribed  by  individuals  and  corporations. 
One-fourth  was  payable  in  coin  and  the  remainder  in  coin,  or  in  the 
funded  debt  of  the  United  States. 

Five  directors  wore  to  be  appointed  by  the  President,  who  were  to 
serve  without  compensation.  Branches  were  to  be  established,  and  the 
notes  of  the  bank,  payable  on  demand,  were  receivable  in  all  payments 
to  the  United  States.  A  penalty  of  twelve  per  cent,  was  prescribed 
for  refusing  to  pay  its  notes  or  deposits  in  coin  on  demand.  The  lowes; 
issue  of  notes  was  .$o.  The  bank  was  required  to  transfer  the  public 
funds  to  different  places,  and  negotiate  public  loans  without  charge.  It 
was  also  to  be  the  depository  of  the  government  receipts. 

At  first  the  bank  did  not  prosper.  The  business  of  the  country  was 
depressed,  and  the  bank  suffered  from  lack  of  competent  management 
It  was  especially  unfortunate  that,  at  the  outset  of  this  second  experi 
ment  in  national  banking,  it  should  have  had  an  incompetent  head. 
In  ISIS,  a  committee  was  appointed  to  investigate  its  affairs,  which 
reported  that  in  several  ways  it  had  violated  its  charter,  and  in  general 
had  failed  to  bring  the  relief  to  the  business  of  -the  country  and  the 
government  that  was  expected  of  the  institution.  A  hew  president 
was  chosen,  and  $7,000,000  of  specie  were  imported  from  Europe  to 
furnish  an  ample  currency  redemption  fund.  The  branch  at  Baltimore 
had  been  mismanaged,  losing  more  than  .?3,000,000.  Under  more  intel- 
ligent direction,  however,  public  confidence  in  the  institution  was  re- 
stored, its  deposits  increased,  and  it  began  to  fulfill  its  proper  work  of 
regulating  the  exchanges  of  the  country  and  of  lending  to  borrowers. 
Its  currency  circulated  everywhere,  was  promptly  redeemed,  nor  were 
its  losses  larger  than  might  have  been  expected  of  an  institution  doing 
so  much  business  in  so  many  places.  Notwithstanding  all  this,  not  long 
after  the  induction  of  President  Jackson  into  ofliice,  he  announced  his 
intention  of  transferring  the  public  deposits  to  other  banks.  It  is  said 
that  the  origin  of  his  intention  grew  out  of  Senator  Webster's  unwill- 
ingness to  consent  to  the  appointment  of  one  of  President  Jackson's 
political  friends  to  the  office  of  president  of  the  branch  at  Portsmouth, 
New  Hampshire.  The  president  of  the  bank,  Nicholas  Biddle.  informed 
the  I'residcut  that  the  bank  had  never  been  active  in  politics,  that  its 
officers  had  been  selected  for  their  fitness,  and  as  Mr.  ^lason.  the 
present  manager  of  the  branch  at  Portsmouth,  was  a  tried  and  efficient 
officer,  there  was  no  reason  for  displacing  him.  As  Mr.  Biddle  woiild 
not  yield  and  convert  the  bank  into  a  mere  political  institution,  Presi 
dent  Jackson  determined  to  remove  the  deposits,  well  knowing  that 
this  step  would  seriously  affect  the  bank,  the  government  and  the 
country.  ^Ir.  Ingham,  who  was  then  serving  as  Secretary  of  the  Treas 
ury,  refused  to  comply  with  the  President's  wishes.  Both  branches  of 
Congress  considered  the  question  and  resolved  that  their  removal  was 
inexpedient.    At  a  later  period  Mr.   Ingham  was  succeeded  by  Louis 


12  PRACTICAL   BANKING. 

McLane,  of  Baltimore,  who  also  declined  to  -emove  tliem.  He  was 
then  bidden  to  step  aside  and  a  third  Secretary  was  appointed,  Mr. 
Duane,  who  was  quite  as  stubborn  as  his  predecessors.  Declining 
either  to  remove  them  or  to  resign.  President  Jackson  removed  him. 
Finally  he  succeeded  in  finding  in  the  person  of  Roger  B.  Taney,  his 
Attorney-General,  a  man  who  was  willing  to  execute  his  wish.  The 
deposits  were  removed  and  not  long  afterward  he  received  his  re- 
ward, the  President  appointing  him  Chief  Justice  of  the  Supreme 
Court  of  the  United  States. 

The  removal  of  the  deposits  was  regarded  with  disfavor  by  nearly 
all  business  men  of  the  country:  indeed,  by  all  except  the  most  violent 
partisans  and  personal  friends  of  the  President.  The  deposits  were 
put  in  state  banks,  many  of  which  were  managed  by  his  friends,  per- 
sons allied  to  his  party.  While  selecting  them  with  reference  to  their 
party  preferences,  doubtless  the  Secretary  of  the  Treasury  tried  to  select 
those  that  were  supposed  to  be  in  sound  condition.  But  the  end  of 
this  politico-financing  was  not  far  off.  A  business  panic  burst  out.  men 
failed  everywhere,  the  banks  went  down  in  the  general  crash,  the 
government  was  unable  to  get  its  deposits,  and  President  Jackson's 
successor,  Mr.  Van  Buren.  yvas  obliged  to  convene  Congress  and  tell  the 
sorrowful  tale,  while  that  body  was  obliged  to  borrow  money  to  pay 
the  ordinary  expenses  of  the  government.  Such  was  the  result  of 
Jackson's  "humble  effort,"  as  he  styled  it.  to  regulate  the  currency  and 
banking  for  the  people. 

Another  plan  was  now  invented  for  keeping  the  government  de- 
posits—the sub-treasury  system,  which  has  been  in  use  ever  since.  We 
shall  not  attempt  to  discuss  its  merits  or  defects;  two  opinions  are  held 
concerning  it.  and  our  readers  who  may  wish  to  know  these  will  find 
them  fully  stated  elsewhere.* 

To  return  to  the  state  banks.  The  second  United  States  bank  lived  its 
appointed  time  and  ceased  to  be.  Once  more  the  state  banks  occupied 
the  entire  field,  and  rapidly  multiplied.  Generally,  the  charters  of  the 
banks  in  the  Eastern  states  were  more  conservative  than  those  issued 
to  the  banks  in  the  Western  and  Southern  states.  An  example  or  two 
may  be  given  to  illustrate  what  kind  of  charters  was  issued  in  those 
days.  A  law  was  passed  by  the  state  of  Kentucky  requiring  the  banks 
in  that  state,  before  opening  doors  for  business,  to  have  a  specified 
amount  of  specie  in  their  vaults  to  redeem  their  circulation.  A  bank, 
therefore,  to  comply  with  the  law  must  obtain  the  specie,  and  make 
proof  of  the  fact,  and  then  a  certificate  was  granted  by  a  proper  state 
official  authorizing  it  to  begin  operations.  As  many  .persons  deter- 
mined to  organize  banks  under  this  law.  an  agent  was  sent  to  New 
York  to  buy  enough  specie  to  comply  with  the  law   in  organizing  a 


*See  The  Independent  Treasury  System,  l)y  David  Kinley,  and  the 
chapter  on  that  subject  in  BoUes'  American  Finance. 


THE   HISTORY   OF  STATE   AND   NATIONAl,   BANKIXO.  13 

single  bank.  Tbo  specie  was  properly  deposited  with  the  first  bank 
or.t?anized,  the  certilieate  above  nieutioued  was  fijranted,  its  doors  were 
opened,  and  then  tlio  specie  was  promptly  withdrawn  and  deposited 
with  another,  where  the  performance  was  repeated,  and  then  with 
another  until  the  circle  was  completed  and  the  certificates  obtained, 
and  then  the  specie  was  returned  to  New  York  and  sold.  Thus  with  a 
small  amount  of  specie  the  banks  had  been  legally  born  and  were 
ready  for  business.  They  flourished,  too,  for  a  while,  so  long  indeed  as 
no  one  wished  specie  for  their  notes.  It  is  easy  enough  to  issue  notes 
if  others  will  take  them;  the  trouble  comes  when  payment  is  demanded. 
So  the  banks  found  out.  When  some  noteholder  came  in  and  demanded 
a  few  real,  specie  dollars,  which  could  not  be  paid,  then  the  cat  put 
in  his  unwelcome  appearance.  Others  soon  came  and  demanded  pay- 
ment of  their  notes,  and  the  bank  was  obliged  to  close  doors.  The 
story  of  its  failure  spread,  and  the  whole  series  of  banks,  that  were 
nothiug  but  windy  structures,  speedily  collapsed.  There  had  been  no 
examination  of  these  so-called  banks,  no  limit  had  been  put  on  the 
amount  of  notes  they  might  issue,  and  their  life  was  short.  Had  they 
lived  longer  they  probably  would  have  wrought  still  greater  mischief. 
We  might  add  that  in  those  days  the  business  was  usually  conducted 
by  men  without  banking  experience,  who  knew  not  how  to  lend 
money,  nor  to  keep  books,  or  the  worth  of  a  good  banking  system. 

Besides,  the  easy  method  of  getting  bank-notes,  by  simply  printing 
and  signing  them,  tended  constantly  to  an  excessive  issue.  A  bank 
acquires  profits,  not  by  keeping,  but  by  lending  its  capital,  and  the  more 
that  can  be  lent,  properly  secured,  the  greater  the  gain.  So,  during 
this  long  period,  until  the  adoption  of  the  national  banking  system,  or 
while  the  system  of  cheap  and  easy  bank  issues  existed,  the  country 
was  deluged  with  them.  This  was  a  repetition  of  English  experience. 
If  anything  can  be  clearly  proved  in  the  history  of  paper  money  issues 
it  is  this— the  more 'easily  they  can  be  made,  the  larger  is  the  quantity 
pushed  into  the  stream  of  circulation. 

Notwithstanding  this  experience  in  Kentucky  and  other  states,  for 
many  years  l)anks  were  often  organized  without  the  contribution  of  a 
single  dollar.  The  shareliolders  organized,  gave  their  notes  to  the  bank 
for  the  sums  needful  to  pay  for  their  stock,  set  the  printing  press  to 
work  making  notes,  received  these  in  exchange  for  their  own  notes, 
and  then  transferred  them  back  to  the  bank  in  payment  for  their 
stock.  Thus  all  that  banks  often  had  to  lend  was  their  own  notes; 
they  held  no  real  capital.  Hundreds  of  banks  were  organized  with  not 
a  dollar  of  gold  or  silver,  or  even  the  notes  of  other  banlvs  in  good 
standing.  Tlicir  stock  in  trade  consisted  wholly  of  their  own  notes- 
pure,  unadulterated  credit  resting  on  nothing.  This  was  the  radical 
side  of  state  banking  in  the  olden  times— a  bank  issuing  simply  its  own 
notes. 


14  ,     PRACTICAL  BANKING. 

A  bank  thus  organized,  as  might  be  expected,  would  be  as  loose  in 
its  method  of  lending  as  in  creating  its  credit.  And  so  in  truth  were 
many  of  these  institutions.  Little  thought  was  taken  of  the  security 
given  for  their  loans.  In  many  parts  of  the  West  land  was  a  favorite 
security,  to  which  a  speculative  valuation  was  given  many  times 
exceeding  its  real  worth.  In  short,  the  history  of  state  banking,  es- 
pecially in  the  West,  for  many  years  was  most  disastrous  to  all  con- 
cerned. The  few  banks  that  conducted  their  business  in  a  conservative 
manner  were  the  exceptions. 

At  last,  this  experiment  taught  the  pulilic  something,  and  legisla- 
tu'-es  r)egan  to  hedge  banks  around  with  limitations.  In  some  of  the 
states  they  were  required  to  hold  a  specified  amount  of  reserve  to 
answer  the  calls  of  depositors.  Other  limitations  related  to  the  kind  of 
money  forming  their  capital.  In  some  states  shareholders  were  for- 
bidden to  borrow  money  from  their  banks  and  pledge  their  stock  as 
security.  This  was  to  prevent  them  from  setting  their  banks  afloat 
without  money.  Another  restriction  was  in  the  amounts  they  could 
lend  to  individuals.  Thus  from  time  to  time  the  system  was  improved 
and  rendered  more  worthy  of  confidence. 

New  plans  were  also  devised  to  secure  noteholders.  One  of  these 
was  known  as  the  safety-fund  system,  and  was  first  tried  in  New  York 
in  1829  during  the  administration  of  Governor  Van  Buren.  The  plan, 
it  is  said,  was  suggested  by  Joshua  Forman,  of  Syracuse,  who  derived 
it  from  the  regulations  of  the  Hong  merchants  in  Canton.  At  thai 
time  a  considerable  number  of  them  received  the  exclusive  privilege 
from  the  government  of  tradingwith  foreigners, -but  all  were  made  liable 
for  the  debts  of  any  one  or  more  of  the  number  who  failed  to  pay 
them.  The  New  York  system  consisted  of  a  fund,  composed  of  annual 
contributions  by  the  banks  of  one-half  of  one  per  cent,  of  their  capital, 
which  were  deposited  with  the  state  treasurer.  They  were  required  to 
do  this  until  the  accumulation  amounted  to  three  per  cent,  of  the  capital 
of  each  bank.* 

Another  mode  of  redeeming  bank  notes  was  adopted  in  New  Eng- 
land, and  is  worthy  of  description  because  the  present  mode  of 
redeeming  the  circulation  of  the  national  banks  is  essentially  the  same. 
This  was  known  as  the  Suffolk  bank  system.  Every  bank  in  New 
England  kept  a  deposit  with  the  Suffolk  Bank  of  Boston,  and  as  its 
notes  floated  into  that  city  they  found  their  way  into  the  Boston  banks, 
and  were  then  taken  to  the  Suffolk  Bank  and  exchanged  for  its  own 
or  other  acceptable  notes,  or  specie. 

When  this  system  was  at  its  height,  the  Suffolk  Bank  took  care  of 
the  circulation  of  nearly  four  hundred  banks.  It  was  secured  by  the 
current  balances  of  these  banks,  which,  it  was  expected,  would  be 
sufficient  for  that  purpose,   and  a  permanent  deposit  of  about  three 


♦White's  Money  and  Banking,  p.  339. 


TllK   lIISTt)UY   OK   STATE    AND    NATIONAL   BANKIN'(}.  15 

thousaiul  dollars  on  which  the  Suffolk  Hank  paid  no  interest.  This 
fund  at  one  time  exceeded  one  million  dollars,  which  it  could  lend  to 
the  best  advantage,  as  the  deposits  were  of  a  permanent  nature.  The 
daily  balances  often  footed  up  as  much  more,  and  were  also  a  source 
of  considerable  profit.  By  this  system  (lie  issue  of  notes  by  the  New 
England  banks  was  constantly  checked,  for  whenever  a  bank  attempted 
to  Increase  its  circulation  very  considerably,  its  notes  were  sure  to 
move  toward  Boston  all  the  more  (luickly  and  be  presented  for  ex- 
change at  the  Suffolk  Bank.  Thus,  soon  coming  back  to  their  home, 
the  circulation  of  every  bank  in  that  section  of  the  country  was  kept 
within  reasonable  limits. 

After  the  failure  of  the  safety-fund  system  in  New  York,  another 
mode  of  securing  the  circulation  of  the  banks  in  that  state  was 
attempted.  This  consisted  in  depositing  the  bonds  of  the  state  and 
ether  specified  securities  with  the  state  controller  at  Albany  as  a  basis 
for  bank  note  issues.  This  system  was  a  great  improvement  over  any 
clhrr  that  had  been  tried,  and  became  so  firmly  established  that  during 
the  panic  of  1857,  when  the  banks  of  New  York  were  unable  to  pay 
specie  for  their  notes  over  their  own  counters,  they  did  not  depreciate 
because  their  holders  knew  that  the  security  was  as  good  as  could  be 
desired.  So,  notwithstanding  tlie  inability  of  the  banks  to  pay  their 
notes  while  the  panic  continued,  they  circulated  quite  as  well  as  before. 
Confidence  in  their  ultimate  payment  had  not  been  destroyed  or  even 
impaired. 

This  system  has  been  often  criticised;  it  is  said  to  be  unscientific 
because  it  is  not  self-adapting  to  the  changing  wants  of  business;  but 
whatever  truth  there  may  be  in  this  criticism,  it  must  be  admitted  that 
it  W'as  a  great  improvement  over  the  systems  that  had  been  tried 
before.  These  were  truly  elastic,  automatic,  could  be  easily  worked 
to  supply  all  the  wants  of  business.  As  we  have  seen  in  this  brief 
outline,  every  borrower  could  be  accommodated  readily  if  the  printing 
press  was  in  order,  the  printer  himself  on  hand,  and  the  supply  of 
paper  ample.  Those  were  the  only  conditions.  The  system  w\as  indeed 
excessively  flexi1)le.  It  was  too  easy  to  accommodate  borrowers,  and 
the  constant  tendency  was  to  over-accommodate  and  lose.  Experience 
clearly  proves  that  the  system  finally  adopted  by  New  York  is  prefer- 
able to  any  of  its  predecessors.  Moreover,  the  central  idea  of  a  circu- 
lation practically  fixed  or  based  on  adequate  security  has  found  favor 
iv  (Jreat  Britain,  and  no  one  in  that  country  ever  demands  a  change. 
Since  1S44  The  English  system  has  been  maintained,  the  fundamental 
principle  of  which  is  in  some  most  important  respects  quite  similar  to 
that  on  which  the  banking  system  of  New  York  finally  rested. 

We  have  thus  explained  at  some  length  the  final  plan  adopted  in 
New  York  because  the  circulating  note  feature  of  the  national  banking 
sjstem,  adopted  in  ISH.''..  was  bascnl  iiriinarily  on  the  experience  of  New 
York.    In  creating  the  national  banking  system   two  ends  were  pro- 


16  PRACTICAL  BANKING. 

posed:  First,  to  create  a  market  for  the  bonds  of  the  government— 
at  that  time  a  very  large  borrower;  and,  secondly,  to  create  a 
bank  note  circulation  that  would  be  taken  everywhere.  The  people  had 
suffered  severely  from  defective  state  bank  systems,  or  lack  of  systems, 
outside  the  Eastern  states.  It  was  often  difficult  to  decide  whether  the 
circulation  of  a  bank  was  safe  to  tal^e  or  not.  Banks  were  fx-equently 
failing,  even  in  c:ood  times.  The  proof  of  this  condition  of  things  is  to 
be  found  in  a  journal,  Thompson's  Bank  Reporter,  the  object  of  which 
vras  to  give  the  values  of  the  notes  of  banks  throughout  the  country. 
Bank  notes  possessed  such  a  varying  value  that  no  banker  or  merchant 
thouglit  of  taking  a  bill  far  away  without  looking  in  this  book  and 
ascertaining  whether  the  issuer  had  failed,  or  what  was  the  present 
value  of  the  note  offered.  A  regular  business  in  those  days  consisted 
in  buying  bank  notes  at  a  discount  and  presenting  them  for  payment. 
Mr.  Thompson  himself  made  a  fortune  in  this  business.  He  would  buy 
at  varying  rates  the  notes  of  Western  banks  that  had  accumulated  in 
New  York,  Boston  and  other  cities,  and  then  send  his  agents  to  tlu 
various  issuers,  or  to  their  assignees,  and  endeavor  to  get  something 
for  them*  This  business  was  somewhat  hazardous,  all  kinds  of  settle- 
ments wei'e  made,  lands,  liouses,  cattle,  grain,  whatever  could  be  had 
was  taken  in  payment.  What  a  strange  business,  dealing  in  the  notes  of 
broken-winded  banks,  compared  with  the  present  bank  note  circulation! 


*The  following  incident  was  told  by  Mr.  Thompson  a  few  years 
before  his  death  to  a  reporter  of  tlie  New  York  Herald: 

"Here  is  an  illustration  of  tlie  way  in  which  the  redemption  of  the 
wildcat  or  stumptail  money  was  accomplished.  I  had  the  handling  of 
an  immense  amount  of  it.  and  sent  my  agents  out  to  redeem  it.  I  sent 
out  my  son  Samuel  and  a  clerk,  with  a  carpetbag  full  during  the  panic 
of  1854  and  1855.  In  his  journeyings  my  son  came  to  the  town  of 
Lafayette,  Ind.,  having  several  thousands  on  the  banks  there.  He  had 
a  colonel  attachment  to  his  name,  from  being  on  the  staff  of  Governor 
Myron  H.  Clark,  with  that  rank. 

"So  the  daily  papers  of  that  town  had  it  out  the  next  morning  that 
Colonel  Sam  Thompson  had  come  out  from  old  John  Thompson,  of  New 
York,  to  clean  all  the  specie  out  of  Lafayette  banks,  and  the  editor 
thought  it  would  be  a  good  notion  to  give  Colonel  Sam  a  bath  in  the 
Wabash,  M'hos<^  Avaters  were  not  very  deep,  but  very  wet. 

"My  son  saw  the  people  nudging  each  other  at  the  hotel  tables  in 
the  morning  and  pointing  at  their  newspapers  and  eyeing  him  with 
great  interest.  Buying  a  paper  he  found  that  v.diat  made  him  such  an 
attraction  was  the  following  from  the  Lafayette  Courier:  'We  will 
assist  in  putting  the  gentlemen  through  a  course  of  hydropathic  treat- 
ment in  the  Wabash,  and  contrilnite  to  purchase  them  a  suit  of  clothes 
made  from  the  extract  of  pine  and  goose  down.' 

"My  son — although  a  soldier,  a  man  of  war,  a  real  colonel,  after- 
ward a  general  of  'millish'— concluded  that  'discretion  was  the  better 
part  of  valor'  and  took  the  next  train  for  Chicago.  He  there  made  sale 
of  his  Indiana  stumptails  at  a  fair  rate,  and  left  that  particular  collec- 
tion to  the  Chicago  purchaser— thinking  that  Western  men  understood 
each  other  and  were  better  fitted  to  do  business  with  each  other  than 
Eastern  men  were  to  deal  with  them." 


THE  HISTORY   OF  STATK   AND   NATIONAL   BANKING.  17 

It  speedily  oarae  to  an  end  with  the  adoption  of  the  national  bank 
system.  In  the  strong  light  of  this  experience  the  people  were  desirous 
of  having  a  better  currency;  and  this  aim  of  the  national  banliing 
syst(>iii  was  hailed  with  universal  delight. 

In  preparing  the  bill  establishing  that  system  the  banking  laws  of 
all  the  states  were  carefully  considered;  and  from  them  many  things 
Avere  taken.  This  is  one  reason  for  reviewing  the  most  important 
changes  in  state  banking  prior  to  the  adoption  of  the  national  banking 
system,  that  its  relation  to  them  may  be  better  understood.  The  mode 
of  issuing  notes,  as  we  have  just  learned,  was  based  on  the  system 
then  in  vogue  in  New  York,  and  wliich  experience  had  proved  to  be 
superior  to  any  other.  The  national  banks  were  required  to  keep  a 
reserve  to  answer  the  calls  of  depositors,  and  this  feature  of  the  act 
was  drawn  from  the  laws  of  Massachusetts  and  Louisiana.  In  Louis- 
iana some  very  stringent  requirements  had  been  enacted  only  a  few 
years  before  relating  to  the  keeping  of  bank  reserves  growing  out  of 
numerous  bank  failures  in  that  state.  The  right  to  keep  a  portion  of  a 
bank's  reserve  with  another  bank  was  adopted  from  the  law  of  Ohio. 
Thus,  the  law  was  a  kind  of  mosaic,  composed  of  the  best  features  of 
all  the  banking  laws  in  the  various  states. 

A  few  more  points  are  worthy  of  special  mention.  First,  the 
national  banks  were  denied  the  right  to  make  loans  on  real  estate 
security.  Past  experience  had  shown  that  real  estate  security  was 
often  very  deceptive.  Fluctuations  had  been  great,  and  except  where 
wide  margins  had  been  left  for  depreciation  losses  had  often  happened. 
Bj  lending  their  money  in  this  manner,  in  many  cases  it  had  become 
permanently  invested;  too  permanently,  perhaps;  all  had  been  lost. 

Another  reason  was,  the  banks  were  created  primarily  to  serve  the 
interests  of  commerce.  They  were  not  authorized  to  serve  investors. 
The  savings  banks  and  private  individuals  have  long  fulfilled  this 
function,  and  it  was  never  intended  by  establishing  the  national  system 
to  narrow  their  field.  National  banks  were  authorized  primarily  to 
keep  their  money  in  active  circulation,  and  this  would  not  be  done 
if  they  were  permitted  to  engage  in  real  estate  operations.  It  was 
expected  that  they  would  make  loans  for  short  periods,  thereby  retain- 
ing a  more  perfect  command  of  their  money,  and  accommodating  more 
persons. 

To  these  reasons  another  may  be  added,  the  power  of  the  banks 
was  feared  if  they  became  permanent  possessors  of  the  land.  Congress 
was  jealous  of  the  power  of  corporations,  and  so  the  permanent  owner- 
ship of  land  by  the  banks  was  rigidly  restricted  to  such  small  portions 
as  might  be  desired  for  strictly  banking  purposes— the  erecting  of  bank 
buildings.  They  were  indeed  permitted  to  take  land  as  subsequent 
security  for  loans,  but  whenever  this  is  done  they  are  required  within 
a  comparatively  short  period  to  part  with  it  and  thus  limit  their 
permanent  ownership  to  small  pieces.    Had  they  been  endowed  with  ao 

2 


l8  PRACTICAL  BANKING. 

uDliiuited  right  of  ownership,  by  this  time  they  might  have  become 
possessors  of  a  vast  rlomain,  lil^e  the  church  establishments  during  the 
Middle  Ages.  There  is  no  danger  of  individual  ownership,  because  the 
life  of  man  is  short  and  his  possessions  pass  to  other  persons;  but  the 
case  is  otherwise  when  land  is  purchased  by  a  corporation.  Endowed 
with  a  long  life,  unless  overtaken  by  bankruptcy,  land  once  acquired 
by  it  may  be  permanently  retained. 

The  national  banking  act,  it  is  true,  prescribed  only  twenty  years 
as  the  period  of  life  for  national  banks,  and  it  may  be  that  at  the  time 
<.tf  devising  the  system,  its  creators  believed  it  would  cease  at  the  end 
of  that  period.  Whatever  they  may  have  thought,  before  the  expira- 
tion of  the  twenty  years,  an  act  was  passed  providing  for  their  exten- 
sion for  another  period  of  similar  length,  and  many  of  the  national 
banks  therefore  are  now  in  their  second  lifetime.  Will  the  end  come 
with  forty  years?  Perhaps  one  man's  prediction  is  as  good  as  anoth- 
er's, but  we  venture  to  prophesy  that  the  need  of  them  will  be  quite  as 
great  at  the  end  of  forty  years  as  it  was  in  1883. 

In  the  beginning,  the  national  banks  organized  in  New  York  or 
any  other  city  were  required  to  be  numbered  first,  second,  third,  fourth, 
and  so  on.  The  act  also  provided  for  converting  state  banks  into 
national  bank  associations.  The  state  banks,  however,  were  unwilling 
to  blot  out  their  names.  For  example,  the  stock  of  the  Chemical  Bank 
of  New  York  stood  at  the  top  of  the  list,  because  it  had  accumulated 
a  very  large  surplus,  greatly  exceeding  that  of  any  other  bank  in  the 
country.  With  a  small  capital  in  proportion  to  its  surplus,  and  wisely 
managed,  the  bank  had  attracted  more  deposits  tlian  any  other  in  the 
city.  Like  many  others,  it  was  unwilling  to  give  up  the  word  Chemical 
and  be  known  simply  as  the  seventh,  eighth  or  ninth  national  bank  of 
New  York.  To  do  this  was  to  impair  its  great  prestige  in  the  world  of 
business. 

This  requirement  concerning  the  change  of  name  was  simply  a  reg- 
ulation of  the  Treasury  Department,  and  not  a  requirement  of  law. 
Again  and  again  bankers  went  to  Washington  and  urged  Mr.  Chase, 
the  Secretary  of  the  Treasury,  to  modify  his  order  and  permit  them 
to  retain  enough  of  their  old  names  to  preserve  their  identity.  But  the 
Secretary  in  this,  as  in  other  matters,  was  long  impervious  to  reason. 
Finally  one  of  his  most  intimate  friends  from  Philadelphia  visited  him 
on  the  same  errand.  After  a  little  he  said  to  him,  "Mr.  Secretary,  you 
are  an  eminent  lawyer,  and  very  likely  after  you  have  retired  from  the 
great  office  you  now  hold  you  may  go  to  Cincinnati,  the  leading  city 
of  your  state,  and  engage  in  the  practice  of  law.  Suppose  a  regulation 
of  that  city  existed  whereby  you  could  not  be  known  by  your  name, 
which  stands  for  so  much,  but  only  by  a  number,  387,  for  example; 
what  would  you  think  of  such  a  regulation?"  The  Secretary  indig- 
nantly replied,  "Y^ou  insult  me,  sir;  you  insult  me!"  and  passed  up  and 
down  the  room  greatly  agitated.    But  the  question  went  to  the  center, 


THE   HISTORY   OF   STATE   AND   NATIONAL   BANKING.  19 

and  the  Secretary  gave  an  order  permitting  the  banks  to  retain  enough 
of  their  names  to  preserve  their  identity  among  men.  llien  the  state 
banks  rapidly  changed  into  national  banking  associations. 

There  was  another  feature  in  the  law,  as  much  disliked  by  some 
bankers  as  it  was  strongly  favored  by  others,  the  keeping  of  a  reserve. 
For  a  season  this  requirement  kept  many  a  bank  out  of  the  system. 
Those  who  were  unwilling  to  complj*  said,  "we  are  quite  as  wise  as  the 
lawmakers;  we  know  how  much  reserve  we  ought  to  keep;  the  govern- 
ment ought  not  to  regard  us  as  children,  incompetent  to  attend  to  our 
business,  and  say  how  much  money  we  must  keep  on  hand  to  answer 
the  calls  of  depositors."  But  the  more  conservative  bankers  upheld 
this  feature  of  the  law.  The  opposition,  however,  was  so  great  that  the 
first  intention  of  those  having  charge  of  the  bill  was  considerably 
changed.  They  proposed  that  the  amounts  for  some  kinds  of  banks 
should  be  considerably  greater  and  be  kept  at  home.  To  make  the 
system  more  popular,  the  amounts  were  reduced  and  the  singular 
expedient  adopted  of  permitting  the  country  banks  to  keep  a  portion  of 
their  reserve  with  a  bank  elsewhere,  which,  as  every  bank  well  knows, 
is  no  reserve  at  all.  This  method  was  adopted  as  a  kind  of  compro- 
mise between  contending  factions  with  the  view  of  making  the  law  more 
palatable  to  the  banks  that  were  unwilling  to  adopt  the  new  system. 
It  was  desirable,  if  possible,  to  create  an  acceptable  system  to  the  banks 
already  established  because  they  possessed  a  large  amount  of  banking 
capital,  and  by  doing  so  the  government  would  at  once  find  a  market 
for  its  bonds,  as  the  entire  capital  of  the  national  banks  at  first  was 
invested  in  them. 

One  other  feature  may  be  briefly  noticed— bank  examinations. 
Some  of  the  banks,  notably  those  in  the  Eastern  states  and  in  New 
York,  had  been  supervised  by  a  state  oflBcial,  but  in  most  of  the  Western 
states  the  banks  had  been  permitted  to  do  as  they  pleased,  unfettered 
by  public  supervision.  They  were  required  to  make  annual  reports  to 
their  respective  state  governments,  but  hardly  anything  more.  This 
feature  of  the  law  therefore  encountered  fierce  opposition.  By  many 
bankers  the  idea  was  regarded  with  disfavor.  On  the  other  hand,  the 
more  conservative  ones  approved  this  feature,  believing  the  effect 
would  be  to  make  bankers  more  careful.  It  was  indeed  a  radical 
departure  from  previous  examinations  or  methods.  The  law  provided 
for  the  appointment  of  a  Controller  of  the  Currency,  and  a  large  num- 
ber of  examiners.  Concerning  the  worth  of  their  work  two  opinions  have 
always  prevailed,  and  the  question  is  still  an  open  one  whether  their 
service  has  been  of  very  much  worth  either  to  the  banks  or  to  the 
public. 

Such  are  some  of  the  leading  features  of  the  national  bank  system. 
It  will  be  seen  that  it  is  a  continuation  or  outgrowth  of  the  systems 
that  prevailed  before;  indeed,  many  state  banks  have  continued 
to  live  and  thrive  by  the  side  of  their  national  bank  competitors.    Of 


20  PRACTICAL   BANKING. 

late  years,  the  aclvantages  formerly  possessed  l»y  the  national  banks 
have  been  lessoning,  and  the  state  banks  have  been  gaining  headway. 
Many  of  them  have  a  larger  latitude  in  lending  money  and  in  doing 
business;  and  in  some  states  they  are  not  required  to  keep  any  reserve— 
an  obvious  advantage  from  a  banker's  point  of  view  as  a  mere  money 
lender. 

It  is  true  that  authority  to  issue  notes  has  practically  been  denied 
them  by  exacting  the  payment  of  a  ten  per  cent.  tax.  a  tax  so  high  as  to 
make  state  bank  note  issuing  unprofitable  (which  was  intended)  so  that 
the  law,  in  effect,  is  prohibitory.  On  the  other  hand,  as  the  government 
is  no  longer  a  borrower  of  money,  and  its  obligations  command  a 
premium,  the  profits  on  bank  circulation,  so  long  a  great  source  of 
profit,  have  almost  disappeared.  The  two  systems,  then,  are  in  many 
regards  more  nearly  rivals  than  they  ever  were  befoi-e.  Consequently, 
state  banks  are  often  organized  as  well  as  national  ones,  and  the  field 
of  enterprise  is  divided  between  them. 

In  closing  this  chapter  it  may  be  added  that  during  the  last  twenty 
years  most  of  the  states  have  revised  their  banking  laws,  conforming 
them  in  many  ways  quite  closely  to  the  national  lianking  act.  Restric- 
tions have  been  imposed  on  banks  in  lending  money,  especially  in 
amounts  that  may  be  lent  to  borrowers;  in  the  creation  and  use  of 
their  surplus;  in  the  returns  that  must  be  made  to  the  state;  in  the 
inspection  of  their  business  by  officers  appointed  for  that  purpose; 
indeed,  the  most  radical  differences  between  the  different  systems  is 
in  the  keeping  of  reserves,  many  of  the  states  still  permitting  banks 
to  exercise  their  discretion  about  Iveeping  them.  In  some,  however, 
restrictions  have  been  Imposed  quite  as  severe  as  those  prescribed  by 
the  national  law. 


7}IE   OUfiANIZING    OF    A    BANK.  21 


CHArXEIl    III. 


Tiir:  <)k<;ani/in(;  of  a  hank. 


I*rt>Iimiuaiy  to  organizing  a  bank  is  the  raising  of  the  capital 
re(inired  by  law.  How  is  this  douf?  There  are  three  ways  of  col- 
lecting a  fund  for  this  purpose. 

Tlio  first  mode  is  through  the  influence  of  one  or  more  persons  who 
have  the  confidence  of  others,  and  who  expect  to  manage  the  institu- 
tion if  formed.  The  capital  of  many  of  the  banks  in  the  country  has 
been  drawn  together  through  the  influence  of  two  or  three  persons  who 
afterv.ard  became  its  president,  cashier  or  other  active  officer.  Not 
infrccjuently  it  happens  that  some  person,  who  has  been  a  successful 
business  man.  solicits  his  friends  to  join  him  in  a  banking  enterprise. 
They  have  confidence  in  his  integrity  and  capacity,  and  through  hi? 
solicitations  are  persuaded  to  promise  him  that  they  will  take  some  of 
its  stock.  When  he  has  succeeded  in  getting  enough  taken  he  is  readj* 
to  advance  a  step  in  organizing  the  bank. 

Another  way  is  through  the  influence  of  a  person  called  a  promoter. 
This  is  a  more  modern  method  of  raising  the  capital  of  a  bank.  It  so 
happens  that  there  are  such  persons  who  command  the  confidence  of 
others  and  are  able  to  persuade  them  to  undertake  business  enterprises. 
Promoters  or  promoting  companies  have  a  firm  footing  in  the  modern 
business  world.  Banks,  insurance  companies,  railway  companies, 
manufacturing  companies  and  other  enterprises  are  started  through 
their  magical  influence.  Generally,  they  are  men  of  much  tact  and 
often  of  considerable  resource,  but  above  all  are  master  of  the  art  of 
persuading  men  and  of  securing  their  assistance.  Sometimes  their 
assistance  is  solicited  by  those  who  have  undertaken  to  form  companies 
without  them  and  have  only  partly  succeeded,  to  complete  their  work. 

The  remuneration  to  be  paid  to  a  promoter  is  often  a  large  sum. 
conditioned  on  his  success.  It  is  a  personal  contract  between  him  and 
the  persons  who  employ  him.  and  should  they  forget  their  promises. 
or  for  any  reasons  fail  to  respond,  he  has  no  claim  on  the  bank  or  other 
company  organized  through  his  efforts.  His  assistance  may  have  been 
very  valuable;  the  institution  may  never  have  come  into  existence 
without  him;  yet  only  the  individuals  who  employ  him  are  liable,  tlie 
corporation  is  not,  unless  it  consents  to  assume  the  contract  made  by 


22  PRACTICAL  BANKING. 

his  employers;  and  even  then  a  question  might  be  raised.  What  con 
sideration  does  the  bank  receive  for  assuming  this  promise  or  engage- 
ment? It  is  very  questionable  whether  it  could  be  held  responsible  to 
pay  if  any  of  the  members  objected  to  the  assuming  of  the  contract. 
The  reason  for  not  holding  the  corporation  is  that  it  has  not  received 
any  benefit  for  which  it  has  promised  to  pay. 

Another  way  of  forming  banks  is  through  the  action  of  several  per- 
sons in  a  community.  Suppose  a  village  has  multiplied  in  numbers  until 
the  more  active  ones  believe  that  a  bank  should  be  organized  for  the 
advantage  and  benefit  of  all.  What  these  advantages  are  have  already 
been  described.  Well  knowing  what  a  bank  could  do  for  them,  the 
subject  is  mentioned  from  day  to  day,  and  goes  the  rounds  lilce  any 
other  topic  in  a  village  community,  until  the  interest  in  the  proposed 
undertaking  becomes  general.  When  it  is  thus  learned"  that  a  bank 
is  desirable,  a  paper  is  prepared  which  it  is  expected  persons  will  sign, 
stating  the  amount  of  capital  that  it  is  desirable  to  raise,  and  the 
number  and  amount  of  shares.  This  paper  usually  is  very  brief  and 
may  read  something  like  the  following: 

We,  the  undersigned,  desirous  of  establishing  a  banlc  in  this  village, 
of  the  capital  of  .*F.50,000.00,  to  be  composed  of  500  shares,  of  .$100 
each,  hereby  promise  to  take  the  number  of  shares  set  opposite  to  our 
names. 

The  paper  is  circulated  until  the  requisite  amount  is  subscribed. 
Such  a  paper  is  valid  among  the  signers  as  soon  as  the  bank  is 
organized,  but  until  then  "the  subscription,"  says  the  court  in  a  recent 
case,  "is  a  mere  proposition  or  offer,  which  may  be  withdrawn,  like 
any  other  unacceptable  offer."* 

It  sometimes  happens  that  a  subscriber  fails,  or  is  unable  to  pay, 
although  promising  in  perfectly  good  faith.  The  national  banking  act 
provides  for  just  such  events.  The  fact  is  duly  advertised,  and  an 
endeavor  is  made  to  get  subscribers  for  the  amount.  Of  course,  the 
other  subscribers  are  not  required  to  increase  their  subscriptions. 
Very  likely  they  would  do  so  rather  than  fail  to  organize  the  bank.  It 
none  of  them,  or  any  other  person,  is  able  or  willing  to  take  the  stock, 
the  law  provides  for  diminishing  the  amount  of  capital,  and  of  organ- 
izing the  bank  with  less  than  was  first  intended.  If  the  reduc- 
tion thus  caused  should  be  so  great  as  to  bring  the  remaining  amount 
below  the  minimum  limit  required  by  law,  a  receiver  must  be  appointed 
to  wind  up  its  affairs. f 

♦Hudson  Real  Estate  Co.  v.  Tower.  156  I\Iass.  82. 

t"In  organizing  a  country  bank  the  policy  to  be  pursued  is  usually 
determined  by  the  special  object  had  in  view  by  the  organizers.  If  they 
are  men  of  large  means  themselves,  and  desire  to  conduct  the  institu- 
tion simply  for  their  individual  jjrotit.  tliey  will,  of  course,  suliscribe 
to  the  bulk  of  tlie  stock  and  control  tlie  wliole  affair;  but  if  the  object 
of  the  organizers  is  to  benefit  themselves  as  part  of  the  general  l)usiness 
community,  and  alijo  to  benefit  the  community  at  large,  the  course  Qf 


THE  ORGANIZINO   OF   A   BANK.  23 

We  have  now  described  the  prelimiuary  operation  of  raising 
the  capital  to  organize  a  bank.  In  many  cases  it  is  a  very 
simple  thing  to  raise  the  capital.  Sometimes  half  a  dozen  persons 
su1)Scribo  for  nearly  the  "whole  amount,  and  the  balance  by  others. 
In  other  cases  to  get  enough  subscribers  is  a  long,  slow  process.  In 
still  other  cases  an  attempt  is  made  to  enlist  persons  in  the  enterprise 
and  in  the  end  thej*  fail,  and  the  institution  is  never  born.  And  we 
may  also  add  that  many  organized  baulcs  were  originally  private 
banks.* 

Having  found  out  that  the  money  will  be  forthcoming  when  required, 
it  is  safe  to  proceed  to  organize  the  bank.     Bj- the  national  banking  law 


proceeding  will  be  somewhat  different.  This  latter  case  is  similar  to 
that  in  which  the  enterprising  men  of  a  town  would  undertake  to 
build  a  new  hotel  or  public  hall,  or  any  other  institution  designed  to 
develop  the  resources  of  the  community  and  to  be  a  public  beuetit.  If 
such  be  the  controlling  view  in  organizing  the  Ijauk,  and  from  the  stand- 
point of  the  public  interests,  sucli  should  be  the  controlling  view,  the  ob- 
ject will  be  to  interest  as  many  people  as  possible  in  the  prospects  of  the 
institution,  and,  with  an  eye  to  the  future,  to  cut  off  any  unnecessary 
competition  in  business.  To  this  end  the  stock  should  be  widely  dis- 
tributed, every  one  who  can  possibly  be  induced  to  do  so  taking  a  few 
shares.  This  makes  the  bank  a  matter  of  public  interest  and  concern 
from  the  outset;  every  one  will  feel  that  it  is  his  bank,  and  all  have  a 
local  pride  in  the  prosperity  of  their  financial  institution.  These  views 
must  be  modilied  somewhat  where  a  bank  is  to  be  opened  in  a  town 
which  is  already  supplied  with  banking  facilities;  but  under  any  cir- 
cumstances, the  more  people  interested  in  the  institution  the  more 
prosperous  will  the  institution  be."— Extract  from  article  on  Country 
Banking  in  Rhodes'  Journal  of  Banking,  March,  1888,  p.  227. 

*In  Texas,  banks  are  often  started  in  tlie  following  manner:  "A 
country  storekeeper  enjoying  the  contideuce  of  the  community,  and 
having  a  safe  conveniently  displayed,  becomes  the  depository  of  his 
townsmen,  who  use  his  store  as  a  place  of  rendezvous,  where  they  do 
their  talking.  After  a  while  checks  on  him  begin  floating  about  the 
country,  reaching  the  nearest  banking  point,  making  the  man's  name 
known.  Soon  the  city  banks  avail  themselves  of  the  chance  and  pester 
him  with  an  unprofitable  collection  business.  One  thing  begets  another, 
and  almost  unknowingly  our  friend  finds  himself  the  owner  of  an 
exchange  office  in  connection  with  his  store.  This  in  time  grows  into 
an  independent  bank,  which,  after  a  few  years  of  existence,  interests 
others,  olitains  a  charter,  and  one  nice  day  opens  its  doors  as  a  full- 
fledged  national  bank,  whose  crisp,  new  bank  notes  are  the  pride  of  the 
county.  Sometimes  merchants,  having  made  an  independent  fortune, 
sell  out,  and,  desirous  of  being  of  some  consequence  in  the  world,  or 
still  too  young  to  think  of  doing  nothing,  they  commence  the  banking 
business  in  their  country  town,  or  remove  to  a  place  where  they  can 
better  enjoy  their  own  importance."— Rhodes'  Journal  of  Banking. 

*0n  July  .'.  1807,  there  were  fi,r537.114  national  bank  shares.  Of 
these  5,4(')4,037  were  held  by  residents  of  the  states  where  the  banks 
were  located,  873.077  by  non-residents,  of  which  21.729  were  held  by 
residents  of  foreign  countries,  The  number  owned  by  women  was 
1,418,542, 


24  PRACTICAL  BANKING. 

all  tlie  needful  steps  for  organizing  are  laid  down;  they  are  also  in  the 
state  laws  relating  to  the  formation  and  conduct  of  state  banlvs.  Some 
one  who  is  interested  in  the  affair  malies  a  written  application  to  the 
Controller  of  the  Currency,  at  Washington,  giving  the  name  of  the  pro- 
posed liank,  where  it  is  to  be  located,  the  amount  of  the  capital,  and  the 
names  of  at  least  five  persons  who  are  to  be  stocliholders.  This  appli- 
cation should  be  indorsed  by  the  Representative  in  Congress  from  the 
district  in  which  the  bank  is  to  be  established.  It  is  well  to  accompany 
the  application  with  letters  from  persons  of  prominence  who  will 
vouch  for  the  character  and  responsibility  of  those  concerned  in  the 
enterprise.  In  other  words,  the  application  should  be  so  strengthened 
as  to  secure  the  Controller's  favorable  consideration.  In  many  cases 
one  or  more  of  the  persons  interested  in  the  proposed  bank  visit  the 
Controller  and  explain  the  necessity  of  organizing  the  bank,  accom- 
panied it  may  be  by  their  Congressional  Representative  or  other  person 
of  prominence. 

The  Controller  then  inquires  into  the  need  of  a  bank  in  the  place 
mentioned.  How  far  he  can  go  in  denying  such  an  application  is 
perhaps  not  clearly  understood.  In  a  place,  for  example,  having  numer- 
ous banks,  to  an  application  by  persons  of  no  especial  prominence  or 
fitness,  the  Controller  doubtless  would  be  slow  in  granting  a  favorable 
answer.  Applications  for  organizing  l)anks  have  been  denied,  but  his . 
reasons  have  always  justified  his  action.  ^ 

If  the  application  for  organizing  the  l)ank  receives  the  Controller's 
approval,  the  next  thing  to  do  is  to  complete  the  subscriptions  for  the 
stock,  if  this  has  not  been  done  before  making  the  application.  Having 
done  this,  the  subscribers  should  unite  in  Articles  of  Association.  The 
following  is  the  form  of  them  furnished  by  the  Controller  to  those 
who  wish  to  organize  a  national  bank: 

FORM  OF  ARTICLES  OF  ASSOCIATION. 

For  the  purpose  of  organizing  an  association  to  carry  on  the  busi- 
ness of  banking,  under  the  laws  of  the  United  States,  the  undersigned, 
subscribers  for  the  stock  of  the  association  hereinafter  named,  do  enter 
into  the  following  articles  of  association: 

First.    The  name  and  title  of  this  association  shall  be  "The ." 

Second.  The  place  where  its  banking  house  and  office  shall  be 
located,  and  its  operations  of  discount  and  deposit  carried  on,  and  its 
general  business  conducted  shall  be,  &c. 

Third.    The  board  of  directors  shall  consist  of  shareholders. 

The  first  meeting  of  the  shareholders  for  the  election  of  directors  shall 

be  held  at  ,  on  the ,  or  at  such  other  place  and  time  as  a 

majority  of  the  undersigned  shareholders  may  direct. 

Fourth.  The  regular  annual  meetings  of  the  shareholders  for  the 
election  of  directors  shall  be  held  at  the  banking  house  of  this  association 


THE   ORGAMZINd   OK   A   BANK.  25 

on  the  second  Tuesday  of  January  of  each  year;  but  if  no  election  shall 
be  held  on  that  day  it  may  be  held  on  any  other  day,  according  to  the 
provisions  of  section  51-1!>  df  the  Uevlsed  Statutes;  and  all  elections 
shall  be  held  according  to  such  regulations  as  may  be  prescribed  by  the 
board  of  directors,  not  inconsistent  witli  tlie  aforesaid  provisions  of  the 
said  section  .')14i>  of  the  Revised  Statutes. 

Fifth.    The  capital  stoclc  of  this  association  shall  be thousand 

dollars,  to  be  divided  into  shares  of  one  hundred  dollars  each;  but  the 
capital  may  be  increased,  according  to  the  provisions  of  section  5142 

of  the  Revised  Statutes,  to  any  sum  not  exceeding  thousand 

dollars;  and  in  case  of  the  increase. of  the  capital  of  the  association, 
each  shareholder  sliall  have  the  privilege  of  subscribing  for  such  num- 
ber of  sliares  of  tlie  proposed  increase  of  the  capital  stoclc  as  he  may 
be  entitled  to  according  to  the  number  of  shares  owned  by  him  before 
the  stock  is  increased. 

Sixth.  The  board  of  directors,  a  majority  of  whom  shall  be  a 
quorum  to  do  business,  shall  elect  one  of  their  number  to  be  president 
of  this  association,  who  shall  hold  his  ofiice  (unless  he  shall  be  dis- 
qualified, or  be  sooner  removed  by  a  two-thirds  vote  of  all  the  members 
of  the  board)  for  the  term  for  whicli  he  was  elected  a  director;  and  they 
shall  have  power  to  elect  a  vice-president,  who  shall  also  be  a  member 
of  the  board  of  directors,  and  who  shall  be  authorized,  in  the  absence 
or  inability  of  the  president  from  any  cause,  to  perform  all  acts  and 
duties  pertaining  to  tlie  office  of  president  except  such  as  the  president 
only  is  authorized  by  law  to  perform,  and  to  elect  or  appoint  a  cashier, 
and  such  other  officers  and  clerks  as  may  be  required  to  transact  the 
business  of  the  association;  to  fix  the  salaries  to  be  paid  to  them,  and 
continue  them  in  office,  or  to  dismiss  them,  as,  in  the  opinion  of  a 
majority  of  the  board,  the  interests  of  the  association  may  demand. 

They  shall  also  have  power  to  define  the  duties  of  the  officers  and 
clerks  of  the  association,  to  require  bonds  from  them,  and  to  fix  the 
penalty  thereof;  to  regulate  the  manner  in  which  elections  of  directors 
shall  be  held,  and  to  appoint  judges  of  the  elections;  to  provide  for  an 
Increase  of  the  capital  of  the  association,  and  to  regulate  the  manner 
in  which  such  increase  shall  be  made,  and,  generally,  to  do  and 
perform  all  the  acts  that  it  may  be  legal  for  a  board  of  directors  to  do 
under  the  Revised  Statutes  aforesaid;  and  they  shall  also  have  the 
power  to  make  all  by-laws  that  it  may  be  proper  and  convenient  for 
them  to  make,  not  inconsistent  with  law,  for  the  general  regulation  of 
the  business  of  the  association,  and  the  management  and  administra- 
tion of  its  affairs. 

Seventh.  This  association  shall  continue  for  the  period  of  twenty 
years  from  the  date  of  the  execution  of  its  organization  certificate, 
unless  sooner  placed  in  voluntary  liquidation  by  the  act  of  its  share- 
holders owning  at  least  two-thirds  of  its  stock,  or  otherwise  dissolved 
at  any  time,  by  shareholders  owning  a   majority  of  the  stock  of  the 


26  PRACTICAL  BANKING. 

association,  in  any  manner  not  inconsistent  with  law;  and  the  board  of 
directors,  or  any  three  shareholders,  may  call  a  meeting  of  the  share- 
holders for  this  or  any  other  purpose,  not  inconsistent  with  law,  by 
publishing  notice  thereof  for  thirty  days  in  a  newspaper  published  in 
the  town,  city,  or  county  where  the  bank  is  located,  or  by  notifying  the 
shareholders  in  writing. 

Eighth.  These  articles  of  association  may  be  changed  or  amended 
by  authority  of  law. 

In  witness  whereof,  we  have  hereimto  set  our  hands,  this day 

of  ,  eighteen  hundred  and  ninety . 

I  certify  that  the  articles  of  association  of  the were 

executed  in  duplicate,  and  that  one  of  the  instruments  so  executed  if 
the  foregoing;  and  that  the  other,  in  all  respects  like  the  foregoing,  is 

on  file  with  said  bank.  ^ 

Cashier  or  President. 

,  189—. 


It  will  be  noticed  that  the  third  article  above  given  provides  for 
calling  the  first  meeting  to  elect  directors,  etc.  Not  infrequently  thi 
stockholders  have  already  selected  the  directors.  This  question  is 
often  asked  by  persons  before  subscribing  for  their  stock,  and  they  do 
so  expecting  that  the  persons  named  will  be  duly  chosen.  When  this 
happens,  that  the  stockholders  have  agreed  in  advance  on  the  directory 
of  their  bank,  the  third  article  should  read  thus: 

The  board  of  directors  shall  consist  of —  stockholders,  and  the 

following  persons  [here  insert  their  names]  are  hereby  appointed 
directors  of  this  association,  to  hold  their  offices  as  such  until  the 
regular  annual  election  takes  place  pursuant  to  the  fourth  article  of 
these  articles  of  association,  and  until  their  successors  are  chosen  and 
qualified. 

The  persons  who  are  desirous  of  organizing  the  bank  must  be 
legally  capable  of  holding  and  controlling  property  in  their  own  indi- 
vidual right.  Corporations,  firms,  associations  of  any  kind,  and  oven 
married  women,  ought  not  to  be  stockholders  in  the  beginning.  They 
may  become  members  afterward,  and  indeed  often  are;  but  at  th(' 
outset  it  is  desirable  that  only  those  persons  should  be  stockholders 
who  can  act  on  their  own  sole  responsibility,  and  not  as  trustees  or 
representatives.  If,  for  example,  a  married  woman  was  really  desirous 
of  becoming  a  stockholder  this  might  easily  enough  be  done  by  an 
agreement  between  herself  and  some  other  person  who  was  a  sub- 
scriber to  transfer  to  her  after  the  organization  of  the  bank  was  com- 
pleted, a  portion  or  all  of  the  stock  for  which  she  had  subscribed. 
Each  person  taking  part  in  the  organization  must  sign  his  name  to  tlie 
articles.  They  are  also  signed  in  duplicate;  one  copy  is  filed  in  the 
Qflice  of  the  Controller  of  the  Currency,  another  Is  kept  in  the  bank. 


THE  ORGANIZING   OF   A   BANK. 


27 


Ilaviiij?  executod  the  articles  of  association,  the  stockholders  should 
uext  execute  a  paper  called  au  orgauizatiou  certificate,  which  should 
be  substantially  as  follows: 

FORM   OF  ORGANIZATION  CERTIFICATE. 

We,  the  undersigned,  whose  names  are  specified  in  article  fourth 
of  this  certificate,  having  associated  ourselves  for  the  purpose  of  organ- 
izing an  association  for  carrying  on  the  business  of  banking,  under  the 
laws  of  the  United  States,  do  make  and  execute  the  following  organiza- 
tion certificate: 

First.    The  name  of  the  association  shall  be  the 

Second.    The  said   association   shall   be  located   in   the  of 

,  county  of and  State  of ,  where  its  operations  of 

discount  and  deposits  are  to  be  carried  on. 

Third.    The  capital  stock  of  this  association  shall  be  — 


—  dollars 

($ ),  and  the  same  shall  be  divided  into  shares  of  one 

hundred  dollars  each. 

Fourth.    The  name  and  residence  of  each  of  the  shareholders  of  this 
association,  with  the  number  of  shares  held  by  each,  are  as  follows: 


Name 


No.  of  Shares 


Fifth.  This  certificate  is  made  In  order  that  we  may  avail  ourselves 
of  the  advantages  of  the  aforesaid  laws  of  the  United  States. 

In  witness  whereof  we  have  hereunto  set  our  hands  this  day 

of ,  189—. 


State  of 


County  of ,  S! 

On  this,  the day  of 

,  personally  came 


A.  D.  189—.  before  me,  a 


of 


to  me  well  known,  who  sever- 
ally acknowledged  that  they  executed  the  foregoing  certificate  for  the 
purposes  therein  mentioned. 

Witness  my  hand  and  seal  of  oflice  the  day  and  year  aforesaid. 


[Seal  of  notary  or  of  court.] 


28  PRACTICAL   HANKING. 

The  manual  sigiiature  of  each  person  taking  part  In  the  organization 
must  be  appended  to  the  organization  certificate.  A  list  of  the  share- 
holders, but  not  their  signatures,  should  also  be  given  in  the  fourth 
section.  It  must  also  be  aclcnowledged  before  a  judge  of  a  court  of 
record  or  a  notary  public,  and  the  names  of  all  the  shareholders  signing 
the  articles  of  association  must  appear  in  the  acknowledgment. 

This  paper  must  also  be  executed  in  duplicate  like  the  other. 

After  executing  the  organization  certificate,  if  the  directors  are  not 
designated  in  the  articles  of  association  the  shareholders  should  pro- 
ceed to  elect  them.  This  may  be  done  at' any  time  before  the  associa- 
tion is  authorized  by  the  Controller  to  begin  business,  and  afterward 
at  meetings  held  on  a  day  in  January  of  each  year  specified  in  the 
articles  of  association.    They  are  required  to  take  the  following  oatn: 

FORM  OF  DIRECTOR'S  OATH. 

State  of , 

County  of -,  ss: 

I,  the  undersigned,  director  of  the of ,  of  the 

State  of .  do  solemnly  swear  that  I  am  a  citizen  of  the  United 

States,  and  resident  of  the  State  of  ,  and  that  I  will,  so  far 

as  the  duty  devolves  on  me.  diligently  and  honestly  administer  the 
affairs  of  said  bank;  and  that  I  will  not  knowingly  violate,  or  willingly 
permit  to  be  violated,  any  of  the  provisions  of  the  Revised  Statutes  of 
the  United  States  under  which  this  bank  has  been  organized;  and  that 
I  am  the  bona  fide  owner,  in  my  own  right,  of  the  number  of  shares 
of  stock  subscribed  by  me  or  standing  in  my  name  on  the  books  of  the 
said  bank,  and  required  by  said  Revised  Statutes;  and  that  the  same 
is  not  hypothecated,  or  in  any  way  pledged  as  security  for  any  loan  or 
debt. 


Subscribed  and  sworn  to  this day  of  ,  189—,  before  the 

undersigned,  a of  said  county. 


FORM  OF  JOINT  OATH. 


State  of 


County  of ,  ss: 

We,  the  undersigned  directors  of  the i of ,  of  the 

State  of  ,  do  each  of  us  solemnly  swear  that  we  are  citizens 

of  the  United  States,  and  residents  of  the  State  of ,  and  that  wc 

will  severally,  so  far  as  the  duty  devolves  upon  us,  diligently  and 
honestly  administer  the  affairs  of  said  bank;  and  that  we  will  not 
knowingly  violate,  or  willingly  permit  to  be  violated,  any  of  the  provis- 
ions of  the  Revisnd  Statutes  of  the  United  States  under  which  this 
bank  has  been  organized;  ;iii(l  tliat  (>acli  of  us  is  the  bona  fide  owner, 


THE  OROANIZINO  OF   A    BANK.  29 

in  his  own  right,  of  the  number  of  shares  of  stock  subscribed  by  him. 
or  standing  in  Ids  name  on  the  l)oolvs  of  the  said  banlv.  and  required  by 
said  Revised  Statutes;  and  that  the  same  is  not  hypothecated,  or  in  any 
way  pledged  as  si'curity  for  any  loan  or  debt. 


Subscribed  and  sworn  to  this  day  of  .  189—,  before  the 

undersigned,  a of  said  county. 


Every  director,  when  elected,  must  at  once  take  the  oath  in  one  or 
the  other  of  the  above  forms,  and  transmit  the  same  immediately  to 
the  Controller  of  the  Currency. 

To  be  eligible  as  a  director  a  sharehohhn*  must  be  a  citizen  of  the 
United  States,  and  own  at  least  .SI. 000.00  of  the  capital  stock  of  the 
bank.  And  he  must  be  the  real  owner  of  it  free  from  any  pledge  or 
lien.  Again,  he  ceases  to  become  a  director  whenever  his  stock  is 
lessened  below  that  amount. 

Tliree-fourths  of  the  directors  must  have  resided  in  the  state  or 
territory  in  which  the  association  is  located  for  a  year  or  more  pre- 
ceding their  election;  and  they  must  also  continue  to  reside  there  while 
they  remain  in  office. 

As  soon  as  the  directors  iiave  been  cliosen.  they  should  proceed  to 
elect  a  president  and  vice-president,  a  cashier  and  such  other  officers  as 
may  be  required,  and  to  call  in  at  least  fifty  per  cent,  of  the  capital 
stock. 

As  soon  as  those  duties  have  been  performed  and  the  stockholders 
liave  paid  their  money,  another  certificate  should  be  made  and  sworn 
to  by  a  majority  of  the  directors  and  by  the  president  or  cashier  and 
sent  to  the  Controller.    The  following  is  the  form  of  this  certificate: 

CERTIFICATE  OF  OFFICERS  AND  DIRECTORS. 

The  undersigned, president, cashier. 

and  _ directors  of  the organized  under 

the  sections  of  the  Revised  Statutes  of  the  United  States,  approved 
.Tune  22,  1874,  which  authorize  the  organization  of  national  bankinj; 
associations,  and  of  subsequent  acts   in   addition  to  and   amendatory 

thereof,  do  hereby  certify  that dollars  have  been  paid  into  said 

bank,  on  account  of  its  capital  stock,  as  permanent  capital:  tliat  the 
residence  of  each  director,  and  the  amount  of  stoclc  of  which  each 
director  is  the  bona  fide  owner,  are  as  follows: 


Name  of  Director 


Place  of  Residence 


Shares of  Stock 


30  PRACTICAL  BANKlNa. 

And  that  this  bank  has  in  good  faith  complied  with  all  the  provis- 
ions of  said  act  required  to  be  complied  with  before  receiving  authority 
to  commence  the  business  of  banking. 


President. 


Directors.  Cashier. 


State  of 


County  of ,  ss: 

On  this day  of ,  189—,  before  the  undersigned,  a 

,  personally  appeared president, 


cashier,  and directors  of  the nnd  made 

oath  that  the  foregoing  certificate  and  the  matters  and  things  therein  sot 
forth  are  true  to  the  best  of  their  knowledge  and  belief. 


Subscribed  and  sworn  to  before  me,  this day  of ,  189 — . 


The  oath  of  a  majority  of  the  directors  of  an  association  is  sufficient 
for  this  purpose. 

One  thing  more.  A  portion  of  the  capital  must  be  invested  in 
United  States  bonds  and  deposited  with  the  Treasurer  of  the  United 
States.*  When  this  is  done,  the  Controller,  after  assuring  himself  that 
all  the  requirements  of  the  law  above  mentioned  have  been  executed, 
will  give  to  the  association  a  certificate  stating  that  the  law  has  been 
fulfilled  and  that  it  "is  authorized  to  commence  business."  This  must 
be  published  in  the  city  or  county  where  the  bank  is  located  for  sixty 
days  or  more  after  it  has  been  issued. 

Such  is  the  mode  of  organizing  a  national  bank.  The  requirements 
of  the  states  differ  in  some  particulars,  but  in  many  others  are  quite 
the  same.  An  application  must  be  made  to  the  superintendent  of 
banking,  or  to  some  other  officer,  for  authority  to  organize,  and  after 
complying  with  the  law  prescribing  how  this  can  be  done,  a  certificate 
of  authorization  is  given  to  the  bank  to  begin  business.  The  organizing 
of  state  banks  is  somewhat  easier,  because  they  are  not  required  to 
deposit  bonds  with  any  state  official  as  a  basis  of  circulating  notes. 
Furthermore,  should  any  doubt  arise  concerning  the  mode  of  procedure, 
a  letter  of  inquiry,  addressed  to  the  proper  state  officer,  will  usually 
bring  all  the  information  desired. 

After  the  Controller  has  given  his  authority  for  the  bank  to  do 
business  another  meeting  is  held  for  a  very  important  purpose — to 
adopt  a  code  of  by-laws  for  the  government  of  the  bank.    In  preparing 


*See  next  chapter. 


THE  ORAANIZINa   OF  A   BANK.  31 

them  the  president  or  cashier  or  perhaps  several  of  the  directors  usually 
compare  the  by-laws  governiug  other  baukiug  institutions,  and  after 
such  a  comparison  frame  a  series  adapted  to  their  own  purpose.  As  a 
set  may  be  of  some  value  to  those  who  may  have  occasion  to  consult 
our  work,  the  following  are  given:* 

BY  LAWS. 

SECTION    1.     ANNUAL   MEETINGS. 

1.  The  regular  annual  meetings  of  the  stockholders  of  this  bank  for 
the  election  of  Directors  and  for  the  transaction  of  other  legitimate 
business,  shall  be  held  at  its  banking  rooms  between  the  hours  of  two 
and  six  o'clock  p.  m.,  on  the  day  specified  in  the  articles  of  association, 
and  notice  of  the  same  shall  be  given  thirty  days  in  advance,  by  publi- 
cation, such  notice  to  be  signed  by  the  President  or  Cashier  of  the  bank. 

The  directors,  previous  to  the  election,  shall  appoint  three  (3)  stock- 
holders to  be  judges  of  election  for  directors,  who  shall  hold  and  con- 
duct the  same,  and  who  shall,  under  their  hands,  notify  the  person 
acting  as  cashier  of  this  bank  of  the  result  thereof  as  soon  as  ascer- 
tained, and  of  the  names  of  the  directors  elect. 

2.  The  cashier  shall  thereupon  cause  the  returns  made  by  the 
judges  of  election  to  be  recorded  upon  the  minute  boolv  of  the  bank,  and 
notify  the  directors  chosen  of  their  election  by  mailing  same  to  their 
last  known  residence. 

The  cashier  shall  furnish  for  the  use  of  the  judges  of  election  an 
alphabet  ical  list  of  the  stockholders  of  the  bank,  and  each  share  shall 
be  entitled  to  one  vote,  but  no  stock  shall  he  entitled  to  a  vote  at  the 
annual  or  any  special  meeting  of  the  stockholders,  unless  the  person 
offering  to  vote  thereon  shall  have  owned  the  same  and  it  shall  have 
been  transferred  upon  the  books  of  the  bank  at  least  ten  days  previous 
to  said  meeting.  Said  stock  shall  be  voted  in  person,  or  by  any  one 
duly  appointed  by  written  or  printed  proxies,  but  such  proxies  shall  not 
be  voted  by  the  president  or  cashier  of  the  bank. 

SECTION  2.    SPECIAL   MEETINGS. 

A  majority  of  the  Directors  may  at  any  time  call  a  special  meeting 
of  the  stockholders,  or  such  special  meeting  may  be  called  upon  the 
written  request  of  stockholders  owning  or  representing  one-third  of  the 
capital  stock,  and  in  either  of  such  cases  the  Cashier  shall  give  notice 
thirty  days  in  advance  by  mailing  such  notice  to  each  stockholder  at 
postoffice  address  shown  on  stock  ledger,  and  in  such  notice  shall  state 
the  object  of  the  meeting.  At  such  meeting  or  meetings  no  business 
shall  be  transacted  except  that  stated  in  the  notice. 

SECTION  3.    OFFICERS. 

The  Directors,  immediately  after  the  annual  meeting  of  the  stock- 
holders, shall  elect  a  President  from  their  own  number,  who  shall  have 


*A  set  of  by-laws  for  national  banks  is  contained  in  the  instructions 
relating  to  their  organization  furnished  by  the  Controller  of  the  Cur- 
rency. 


32  PRACTICAL   BANKING. 

such  compensation  as  tho  Board  shall  from  time  to  timo  allow.  The 
Board  may  also  elect  from  their  own  miml)er  two  Vice-Presidents,  who 
shall  have  the  power  and  discharge  the  duties  of  the  President  when 
absent.  The  I'resident  and  Vice-Presidents  shall  hold  their  respective 
offices  for  the  year  succeeding  their  election,  or  until  their  successors 
are  elected  and  qualified,  unless  either  of  their  ofhces  shall  become 
vacant  by  resignation,  disqualitication  or  removal.  Any  such  vacancy 
shall  be  filled  by  the  Directors,  and  any  vacancy  in  the  Board  shall  be 
filled  by  the  remaining  Directors  from  among  the  stoclvholders. 

The  Cashier  shall  be  appointed  by  the  Directors,  to  hold  his  position 
during  the  pleasure  of  the  Board,  and  shall  receive  such  compensation 
as  they  may  from  time  to  time  allow. 

The  Tellers  and  Clerks  shall  be  appointed  by  the  Executive  Com- 
mittee with  the  recommendation  of  the  President  and  Cashier,  to  hold 
their  respective  positions  during  the  pleasure  of  the  Board,  with  such 
compensation  as  they  may  from  time  to  time  allow. 

SECTION  4.    EXECUTIVE  COMMITTEE. 

The  Directors  shall  also  choose  from  their  own  number  an  Execu- 
tive Committee  of  five  (5)  and  the  President  shall,  ex-officio,  constitute 
one  of  said  Committee,  and  three  shall  constitute  a  quorum.  In  the 
absence  of  the  President,  the  Committee  shall  elect  one  of  their  own 
number  to  preside  at  any  of  their  meetings. 

The  Executive  Committee  shall  possess  the  powers  and  perform 
the  duties  of  the  Board  of  Directors  in  vacation  except  in  such  matters 
as  require  the  action  of  the  full  Board. 

They  shall  report  their  proceedings  at  every  meeting  of  the  Board 
and  shall  keep  a  book  wherein  all  their  proceedings  shall  be  entei'ed  and 
kept. 

SECTION  5.    CASHIER. 

The  Cashier  shall  take  charge  of  and  faithfully  apply  and  account 
for  all  the  moneys,  funds  and  valuables  of  the  bank,  and  shall  give  a 
bond  with  securities  to  be  approved  by  the  Board  or  its  Executive 
Committee,  in  such  sum  as  the  Directors  may  require,  conditioned  upon 
the  faithful  and  honest  discharge  of  his  duties. 

He  shall  be  clerk  of  all  meetings  of  the  stoclvholders.  Directors  and 
Executive  Committee,  and  keep  regular  records  of  their  respective 
proceedings. 

SECTION  6.    BONDS. 

The  bonds  of  the  ofl3cers,  after  having  been  transcribed  upon  the 
minutes  of  the  bank,  shall  be  placed  in  the  custody  of  a  stockholder  to 
be  designated  by  the  Board,  who  shall  not  be  one  of  the  bonded  oflScers, 
to  be  changed,  modified  or  surrendered  only  upon  the  authority  of  a 
resolution  passed  at  a  regular  meeting  of  the  Board. 

The  Executive  Committee  sliall  direct  what  officers  and  clerks  shall 
give  bonds,  the  kind  of  bonds  and  the  amount  in  each  case. 

SECTION  7.    DIRECTORS'  MEETINGS. 

The  stated  meetings  of  the  Board  of  Directors  shall  be  on  the  last 
Thursdays  of  .Tune  and  December  of  eacli  ye;ir. 

The  Executive  Committee  shall  meet  on  every  ISIonday  at  4  p.  m. 

Special  meetings  of  the  Board  or  Committee  may  be  called  by  the 
President  or  Cashier. 


THE   ORGANIZING   OF  A   BANK.  33 

SECTION   8.    REAL    ESTATE. 

All  conveyances  and  transfers  of  real  estate  shall  be  made  by  and 
in  the  name  of  the  bank,  under  the  seal  thereof,  and  shall  be  signed 
by  the  President  andCasliier.  Mortgages  may  be  satisfied  or  assigned  bj 
the  President,  Vice-President  or  (Jashier. 

SECTION  9.    TRANSFER  OF  STOCK. 

The  stock  of  this  bank  shall  l)e  assignable  only  on  the  books  of  the 
bank  by  the  owner  in  person  or  by  his  attorney  thereunto  duly 
appointed,  subject  to  the  restrictions  and  provisions  of  the  act  under 
which  tlie  bank  is  organized;  and  a  transfer  book  shall  be  kept  in  which 
all  assignments  and  transfers  of  stoclc  shall  be  made. 

No  transfer  of  stock  shall  be  made  without  the  consent  of  the 
Board  or  its  Executive  Committee  by  any  stockholder  who  shall  be 
liable  as  principal  debtor  or  otherwise;  and  the  bank  shall  have  a  lien 
upon  all  stock  owned  by  any  person  as  security  for  any  indebtedness 
due  the  bank.  Certificates  of  stock  signed  by  the  President  and  Cashier 
shall  be  issued  to  stockholders,  and  the  certificate  shall  bear  upon  its 
face  the  provisions  of  this  by-law. 

SECTION   10.    LOANS. 

The  regular  time  for  discounting  or  purchasing  notes  or  bills  and 
making  loans  shall  be  at  the  meeting  of  the  Executive  Committee.  In 
cases  of  no  quorum,  and  between  these  stated  meetings,  the  President 
and  Cashier,  and  in  the  absence  of  the  President  the  Cashier  and  one 
Director,  shall  have  power  to  discount  and  purchase  notes  and  bills  and 
make  ordinary  loans. 

The  Cashi-er  is  authorized  to  make  loans  not  in  excess  of  $2,000.00 
to  patrons  of  the  banlc  and  extend  previously  approved  lines  of  accom- 
modation to  regular  customers. 

SECTION  11.    LOANS  TO  OFFICERS. 

No  otEcer  or  employe  of  the  bank  shall  be  allowed  to  use  the  funds 
of  the  bank  on  his  own  account,  either  by  loan  or  otherwise,  without 
the  consent  of  the  Board  or  its  Executive  Committee. 

SECTION  12.    LOANS  LIMITED. 

No  loan  shall  be  made  to  an  individual,  firm,  or  corporation,  in 
excess  of  one-tt-nth  of  tlie  capital  stoclv  actually  paid  in.  Commercial 
paper  bought  on  endorsement  shali  not  be  construed  to  form  a  part  of 
the  line  of  accommodations  as  above  provided. 

SECTION  13.     EXAMINATIONS. 

At  each  regular  meeting  of  the  Board  of  Directors  they  shall  appoint 
two  of  their  members  to  examine  into  the  affairs  of  the  bank,  count 
its  cash  and  compai-e  its  assets  and  liabilities  with  the  general  ledger, 
ascertain  whether  those  accounts  and  all  others  are  correct,  whether 
the  bank  is  in  a  sound  and  solvent  condition,  which  Committee  shall 
make  such  examination  at  siicli  time  or  times  as  they  shall  see  fit, 
without  notice,  and  make  n  full  report  of  the  restilts  of  such  examina- 
tion or  examinations  to  the  Board  of  Directors  at  the  nest  regular  or 
3 


84  PRACTICAL   BANKING. 

special  meeting  of  the  Board,  and  the  result  of  such  examination  shall 
be  eertitied  and  recorded  in  the  minutes  of  the  banli. 

SECTION  14.     EXPENSES. 

The  current  expenses  of  the  bank  shall  be  paid  by  the  Cashier,  who 
shall,  every  six  months,  or  oftener  if  required,  make  to  the  Executi^'e 
Committee  a  detailed  statement  thereof. 

SECTION  15.    DIVIDENDS. 

The  earnings  of  this  bank  shall  be  disposed  of  according  to  orders 
of  tlie  Board  of  Directors,  made  at  a  special  or  regular  meeting,  and  no 
dividends  shall  l)e  paid  to  stockliolders  or  other  disposition  made  of 
earnings  except  upon  an  order  of  tlie  Board. 

SECTION  in.     SPECIAL  DEPOSITS. 

Special  deposits  with  the  l>ank  of  valuable  articles  for  safe  keeping 
may  be  received  l)y  tlie  Cnsliier  at  his  discretion,  and  a  receipt  shall  be 
given  therefor  stating  that  such  deposit  is  at  the  sole  risk  of  the  owner. 

SECTION  17.    AMENDMENTS. 

These  By-laws  may  be  altered  or  amended  at  any  stated  meeting 
of  the  Directors  by  a  vote  of  a  majority  of  the  whole  Board,  provided 
notice  of  proposed  alteration  or  amendment  has  been  given  thirty  days 
previous  to  said  meeting  by  mailing  notice  to  each  Director  at  his  last 
known  postoffice  address  as  shown  by  the  stock  ledger. 


The  selection  of  a  title  is  not  always  easy,  and  the  controller  usually 
gives  tlie  parties  interested  sixty  days  for  doing  this,  which,  for  a 
good  reason,  may  be  extended.  The  name  of  the  place  where  the  Banlc 
is  to  be  located  should  form  a  part  of  the  title.  But  if  the  name  of  the 
place  is  to  be  the  prominent  word  in  the  title  and  appear  first,  it  should 
not  be  repeated.  If  it  is  not  to  l)e  the  chief  word,  it  should  appear  last. 
In  no  case  need  the  name  of  the  state  be  added. 

The  amount  of  capital  required  to  organize  a  National  Bank  was 
changed  by  the  law  of  liKlO.  In  cities  which  have  a  population  of 
,')0.000  or  more,  the  capital  must  not  be  less  than  ,$200,000.  In 
places  the  iiopulation  of  whicli  exceeds  0,000  and  does  not  exceed 
r>0,000.  the  capital  must  l)e  ."fno.ooo  or  more.  In  places  having  a  popula- 
tion between  3,000  and  0,000,  tlie  capital  may  be  as  small  as  .$25,000. 


SHAREHOLDERS  AXD  THE  TRANSFER  OK  STOCK.  35 


CITArTER  IV. 

SHAREHOLDERS  AND  THE  TRANSFER  OF  STOCK. 

As  we  have  seen  by  the  nation.al  banldnsr  art.  fifty  per  cent,  of  the 
capital  of  a  l)auk  must  be  paid  before  the  Controller  will  give  authority 
for  the  opening  of  its  doors;  and  the  remainder  in  ten  per  cent,  monthly 
installments.*  Thus  the  entire  stock  of  a  bank  must  be  paid  within 
six  months  after  it  has  begun  business.  Furthermore,  the  installments 
must  be  paid  in  and  certified  to  the  Controller,  one  on  each  successive 
thirty  days  from  the  date  of  the  Controller's  certificate  of  authority  to 
begin  business.    The  following  is  the  usual  form  of  certificate: 

CERTIFICATE  OF  PAYMENT  OF  CAPITAL  STOCK. 

Bank 189—. 


Sir:    It  is  hereby  certified  that  the  — installment,  amounting  to 

dollars  (.$ ).  has  been  paid  in  on  account  of  the  capital 


stock  of  the making  the  total  amount  paid  in  on  the 

capital  stock  of  this  bank  ? . 

[Seal  of  Bank.]  

Cashier. 
To  the  Controller  of  the  Currency, 

Washington,  D.  C. 

State  of  


County  of 


Subscribed  and  sworn  to.  before  the  undersigned of  the  said 

countv  this day  of ,  189—. 


N.  B. — Banks  are  requested  not  to  report  the  payment  of  any  one 
installment  twice,  except  as  included  in  total  amount  paid  in. 

Very  generally  stockholders  contribute  the  entire  amount  of  their 
capital  at  the  beginning.  In  some  cases  even  a  surplus  is  then  formed 
by  the  payment  of  an  additional  sum.    The  object  of  creating  a  surplus  is 


*0n  July  5.  1897.  there  were  6,337,114  national  bank  shares.  Of  these, 
5.464.037  were  held  by  residents  of  the  State  wliere  the  banks  were  located, 
873.077  by  non-residents,  of  which  21.729  were  held  bv  residents,  of  foreign 
coimtries.     The  number  owned  by  women  was  1,418,543. 


36  Practical  bankikcj. 

to  enhance  a  bank's  credit  and  stability.  Indeed,  it  is  a  sign  of  weakness 
to  pay  at  first  only  a  part  of  the  capital;  but  in  the  smaller  places, 
where  capital  is  not  so  abundant,  it  may  not  be  easy  for  stockholders 
to  pay  the  entire  amount  at  the  beginning,  and  so  the  law  has  provided 
for  this  emergency.  In  the  larger  cities,  however,  a  bank  would  be 
regarded  as  a  lame  affair  that  paid  only  a  half  of  its  capital  when 
beginning  business. 

Indeed,  in  the  larger  cities  the  organizing  of  a  new  bank  and  con- 
ducting it  successfully,  is  a  very  difficult,  and  thei'efore  risky  venture 
unless  favored  by  unusual  circumstances.  The  older  banks  that  have 
acquired  experience  and  accumulated  a  large  surplus,  possess  great 
advantages  over  a  newly  formed  organization.  Why  should  customers 
leave  an  old  bank  possessing  ample  means,  able  and  willing  to  accom- 
modate  them,  for  a  new  and  untried  institution?  This  question  at  once 
reveals  the  hard  prol)l(  m  that  a  new  bank  in  one  of  the  larger  cities 
well  supplied  Avith  banking  facilities,  perhaps  over-supplied  with  them, 
must  face.  It  is  true  that  they  may  be  successful  if  organized  In  parts 
of  a  growing  city  where  they  can  draw  customers  by  reason  of  their 
greater  convenience.  Distance  often  counts  for  much,  and  a  good  bank 
next  door  is  likely  to  be  patronized  In  preference  to  one  a  quarter  or 
half  a  mile  away.  Again,  a  new  bank  may  be  started  in  a  large  city 
having  stockholders  and  directors  who  ai'e  so  interested  in  business 
that  they  can  bring  a  large  amount  of  business  and  influence  the 
coui'se  of  other  people.  Now  and  then  a  bank  Is  organized  of  this 
character  with  such  powerful  support  as  to  insure  its  immediate 
success.    But  unless  a  bank  in  a  large  city  has  some  advantage  by 

•  reason  of  its  location,  or  influential  organization,  the  probabilities  are 
that  depositors  will  be  attracted  very  slowly  and  it  may  prove  a 
failure.  There  have  been  enough  failures  of  this  nature  in  our  large 
cities  of  late  years  to  serve  as  a  loud  warning  to  future  projectors.  In 
this  regard  the  establishing  of  a  bank  Is  wholly  unlike  fhe  establishing 
of  a  factory  or  store  for  the  production  and  sale  of  goods.  A  bank  Is  a 
peculiar  creation  in  which  faith,  credit,  experience  and  ability  count  for 
so  much.  A  person  may  go  into  a  store  to  buy  goods  and  neither  know 
nor  care  who  may  be  the  owners  or  salesmen.  He  wishes  a  particular 
thing,  and  if  he  can  get  it  there  at  a  price  as  low  or  lower  than  it  can 
be  purchased  elsewhere,  that  is  quite  enough.  But  the  conditions  on 
which  people  confide  their  deposits  to  banks  and  do  business  with  them 
are  very  different.  They  wish  to  be  assured  above  all  things  of  thfe 
honesty  and  al>ility  of  those  with  whom  they  foi-m  such  confidential 
relations;  and  consequently  when  the  character  of  a  bank  is  well  and 
favoi'ably  known,  its  customers  are  unwilling  to  leave  and  join  a  new 
enterprise  unless  some  clear  advantages  are  to  be  gained  by  the 
change.  These  facts  explain  why  new  banks  in  the  larger  places,  except 
those  established  under  unusual  conditions,  have  had  such  a  slow  growth, 
and  why  so  many  of  them  have  been  obliged  to  suspend  business. 


SHAREHOLDERS  AND   THE  TRANSFER  OF   STOCK.  37 

Stockholders  of  national  banks  must  pay  for  their  subscriptions  in 
money.  They  cannot  give  notes.  They  can  indeed  give  a  check  on 
another  bank,  for  this  is  deemed  equivalent  to  money.  In  the  olden 
times  the  regulations  for  paying  in  the  capital  of  a  bank  were  very 
imperfect.  In  many  states  none  whatever  existed.  In  a  previous 
chapter  we  have  shown  that  banks  were  often  organized  and  set 
afloat  without  any  capital.  The  process  simply  consisted  in  discounting 
the  notes  of  the  stockholders  for  the  amount  subscribed,  the  l)auk 
paying  them  in  its  own  circulation  which,  in  turn,  was  returned  by  the 
stockholders  to  the  bank  in  payment  of  their  stock.  It  was  in  the  light 
of  this  experience  that  tlie  national  baulviug  law  requires  stockholders 
to  paj'  in  money,  and  forbids  the  discoimting  of  notes  by  a  bank  on  the 
pledge  of  its  own  stock  as  security. 

"With  respect  to  the  liabilities  of  national  bank  stockholders  the 
national  act  limits  the  amount  to  a  sum  not  exceeding  their  stock.  If 
a  stockholder  has  subscribed  for  ten  shares,  worth  at  par  $1,000.00,  he 
may,  in  the  event  of  the  bank's  failure,  be  held  liable  for  $1,000.00 
more,  if  as  much  is  required  to  pay  the  bank's  indebtedness;  but  that 
is  the  maximum  amount  of  his  liability. 

When  stockholders  have  paid  for  their  stock,  they  receive  cer- 
tificates for  it.  These  are  titles  to  the  bank's  property;  in  other  words, 
to  the  money  they  have  paid.  If  stock  is  paid  in  installments,  they 
receive  receipts  for  the  amount  paid,  but  do  not  get  certificates  until 
after  paying  the  full  amount.  The  national  bank  act  requires  the 
shares  to  be  in  amounts  of  $100.00,  in  harmony  with  the  general  prac- 
tice of  joint  stock  companies  throughout  the  country.  Many  of  the 
state  banks,  however,  were  organized  with  shares  having  a  par  value  of 
$50.00.  In  such  cases  they  have  been  permitted  to  organize  as  national 
bank  associations  and  issue  shares  for  similar  amounts.  This  is  the 
reason  why  some  of  the  national  banks  have  shares  for  smaller 
amounts  than  other  banks. 

Care  should  be  used  in  preparing  bank  certificates.  A  form  in 
common  use  is  here  given.  Most  of  them  are  now  engraved,  although 
the  law  does  not  require  this  to  be  done.  The  counterfeiting  of  an 
engraved  certificate  is  more  difiicult,  and  for  that  reason  they  are 
better.  The  New  York  Stock  Exchange  requii'es  that  all  stocks  listed 
there  for  sale  must  be  engraved.  It  is  the  general  practice  among 
banks  nowadays  to  have  their  certificatps  engraved  instead  of  printed. 
As  there  is  keen  opposition  in  the  business,  a  bank  can  have  a  plate 
made  and  its  certificates  printed  at  a  reasonable  price. 

In  issuing  certificates,  they  mtist  be  signed  by  the  president  and 
cashier.  Cases  have  occurred  in  which  the  cashier  has  signed  them  in 
blank  for  future  use.  and  they  have  subsequently  gone  into  circulation. 
If  he  should  sign  a  certificate  in  that  manner,  it  would  be  a  warranty 
of  its  genuineness,  and  his  bank  would  be  liable  for  the  loss  to  subse- 
quent holders  who  should  receive  it  and  loan  money  thereon.    A  bank 


86393 


^. 


« 


(^ 


^ 

V 


^ 

^ 


K 


vl^ 


SHAREHOLDERS  AND  THK  TRANSFER  OF  STOCK. 


39 


is  liable  in  such  a  case  like  tlic  iiulorscr  of  negotiable  paper  who 
warrants  the  {rcMiuineness  of  the  instrument  and  all  the  signatures 
before  his  own.* 

Great  care  should  be  exercised  in  filling  out  a  certificate.  The  name 
should  be  carefully  written  and  everj-  precaution  taken  to  guard 
against  mistakes. 

After  their  issue,  transfers  are  constantly  taking  place.  Subscribers 
die  or  sell  their  stock,  or  pledge  it.  and  so  bank  officers  are  constantly 
required  to  make  transfers  for  their  customers.  The  cashier  is  the 
proper  officer  to  attend  to  tlie  l)usiness  of  transferring  tlie  stoclv  of  his 
bank.  In  doing  this  lie  acts  for  the  banlc,  and  not  for  the  sliareholder 
who  requests  the  transfer  to  be  made.  Consequently  his  liank  is  liable 
to  any  one  for  money  received  for  stock  sold  to  him.  A  case  of  this 
kind  occurred  a  few  years  ago  in  which  the  cashier  was  sued,  and  the 
judge  remarked  that  he  must  be  regarded  as  the  agent  of  the  board  of 
directors  of  the  corporation,  and  therefore  the  suit  must  be  l)rought 
against  tlie  bank.  In  other  words,  the  cashier  acts  as  the  representa- 
tive of  the  banlv,  and  not  personally  in  making  the  transfer,  and  conse- 
quently whether  he  has  violated  the  law  or  not  is  a  matter  to  be  deter- 
mined in  an  action  between  the  shareholder  and  the  bank. 

A  stock  book  is  kept  wherein  is  recorded  all  transfers  of  stock. 
Herewith  is  given  a  specimen  page.    The  transfer  officer  enters  on  the 


I^ESISTER  AND  RECORD  OF  GERTIFIEATES  OF  ST0:;K. 


RECOKD  or  ISSLE 

p 

= 

= 

= 

of 

1 

TRANSFERRED 

OWNEB  or  OKBTinCATE 

I,,,. 

C-. 

No. 

tlOOp,,  Sh.rf 

I.a,.            B       N,. 

fh*;;:. 

u.!v. 

b. 

y.  1  o..r.,f. 

left  side  every  cancelled  certificate;  on  the  other  side  he  records  a 
description  of  every  new  certificate  issued.  It  does  not  follow  that  the 
two  sides  of  this  book  sliould  balance.  Not  infrequently  the  record  of 
the  certificates  issued  will  show  a  smaller  number  of  shares  issued  than 
the  other  side  of  certificates  cancelled.  The  reason  is  that  persons  to 
wlioni  shares  have  been  transferred  are  not  always  ready  to  talvc  out 
new  certificates  of  their  ownership.    They  may  wait  with  the  expecta- 


*See  Bolles  on  Bank  Officers,  section  512. 


40  PRACTICAL  BANKING. 

tion  of  buying  more  stock  and  taking  out  one  certificate  for  ihe  entire 
amount. 

In  transferring  a  certificate,  tliere  is  a  printed  form  on  the  back 
which  must  be  signed  by  the  owner,  and  delivered  to  the  purchaser. 
"When  this  has  been  done,  the  purchaser  presents  it  to  the  bank  and  de- 
sires a  new  certificate.  The  first  act  of  the  transfer  ofiicer,  usually  the 
cashier,  is  to  cancel  the  certificate  thus  presented.  This  is  usually  done 
by  cutting  out  portions  of  the  name  of  the  cashier  or  president,  and 
also  of  making  an  entry  across  the  face  something  like  this:  "Stock 
transferred  and  certificate  cancelled,"  giving  the  date  of  the  transfer 
and  also  the  number  of  the  new  certificate  issued  to  the  presentor. 
The  surrendered  certificate  should  be  pasted  into  the  stock  book 
opposite  the  stub  to  which  it  properly  belongs.  If,  for  example,  the 
certificate  in  the  order  of  issue  was  number  sixty-one,  it  should  be 
pasted  on  the  stub  thus  numbered.  The  new  certificate  is  filled  out  and 
signed  in  the  same  manner  as  the  first. 

Certificates  are  often  made  out  to  trustees,  and  when  this  is  done 
care  should  be  taken  to  describe  the  nature  of  the  trust.  If,  for 
example,  a  certificate  is  made  to  a  trustee  acting  under  a  will,  the 
certificate  should  read,  after  giving  the  name  of  the  trustee,  "Trustee 

imder  the  will  of  is  proprietor  of shares  of  this 

bank."  An  executor's  certificate  should  contain,  not  simply  his  name 
as  executor,  but  his  name  as  executor  of  the  estate  of    __ 

Banks  ouglit  to  act  slowly  in  making  certificates  to  persons  simply 
as  trustees.  In  former  times  certificates  were  thus  made  to  persons, 
without  any  description  of  the  nature  of  their  trust.  The  accounts  of 
many  savings  banks  depositors  have  been  often  kept  in  this  manner. 
In  truth,  in  many  of  these  cases  there  was  no  trust;  it  was  merely  a 
device  to  enable  persons  to  deposit  more  money  than  the  law  permitted 
in  their  own  names,  or  to  secure  it  against  attachment,  or  for  some  other 
purpose  not  strictly  proper.  Rut  if  a  person  is  really  acting  as  a  trustee 
the  certificate  should  clearly  specify  the  trust  relation.  And  for 
several  reasons:  First,  suppose  the  person  who  has  described  him- 
self as  trustee  should  die,  AVhat  shall  the  bank  do  concerning  the 
subsequent  transfer  of  this  stock?  Suppose  John  Smith  was  a  trustee, 
thus  described,  and  his  executor  appears  and  says  that  he  is  authorized 
to  administer  on  John  Smith's  estate?  Does  that  empower  the  bank  to 
do  whatever  he  may  wish  concerning  the  transfer  of  the  stock  standing 
in  the  name  of  John  Smitli,  trustee?  Does  it  belong  to  .John  Smith's 
estate,  and  is  it  rightfully  under  the  control  of  his  administrator, 
or  executor?  If  John  Smith  was  trustee  of  some  estate,  should 
not  some  other  trustee  be  appointed  in  his  place,  and  the  bank 
refuse  to  make  any  transfer  until  he  is  qualified  and  gives  proper 
evidence  of  his  authority  to  control  the  stock?  This  inquiry  is  sufficient 
to  show  tlie  need  of  finding  out  at  tlie  time  of  making  out  a  trust 
certificate  tlie  nature  of  the  trust,  instead  of  delaying  until  the  death  of 


SHAREHOLDERS  AND  THE  TRANSFER  OF  STOCK.  41 

the  real  or  pretended  trustee.  For  surely  a  time  will  come  when  the 
bank,  in  order  to  be  safe,  must  carefully  ascertain  the  nature  of  the 
original  trust  and  what  steps  are  needful  to  make  a  proper  transfer. 

Sometimes  certificates  are  transferred  by  the  agents  of  the  owners. 
Whenever  this  is  done  the  bank  must  be  careful  to  ascertain  the  agent's 
authority.  He  should  show  a  power  of  attorney,  or  other  authority,  to 
justifj-  the  bank  in  making  the  transfer  on  its  books.  The  instrument 
need  not  be  witnessed,  although  it  often  is,  and  the  practice  is  a  good 
one.  « 

POWER  OF  ATTORNEY. 


Know  all  Men  by  these  Presents: 

That ha made,  con- 
stituted and  appointed,  and  by  these  presents  do  make,  constitute  and  appoint 

true  and  lawful  Attorney for and  in 

name,  place  and  stead. 

1.  To  endorse  my  name  on  drafts  and  checks  for  deposit 

2.  To  endorse  my  name  and  draw  money  on  drafts  and  checks  payable  to  my  order. 

3.  To  sign  checks  in  my  name  on  my  account  in  the  Indiana  National  Bank  of 
Indianapolis. 

giving  and  granting  unto said  Attorney,   full  power  and  authority  to  do 

and  perform  all  and  every  act  and  thing  whatsoever  requisite  and  necessary  to  be  done 

in  and  about  the  premises  as  fully  to  all  intents  and  purposes  as might  or 

could  do  if  personally  present,  with  full  power  of  substitution  and  revocation,  hereby 

ratifying  and  confirming  all  that said  Attorney or substitute 

shall  lawfully  do  or  cause  to  be  done  by  virtue  thereof. 

In  Witness  Whereof,  have  hereunto  set hand.,  and 

seal ,  this day  of in  the  year  one 

thousand  eight  hundred  and 

My  sigfnature: 


Not  long  since  a  person  presented  himself  to  the  cashier  of  a  bank 
holding  in  his  hand  a  certificate  of  shares  which  he  had  stolen.  This 
was  accompanied  by  a  power  of  attorney  filled  up  in  the  most  approved 
manner,  containing  the  forged  name  of  the  owner  of  the  certificate, 
and  the  signatures  of  two  witnesses.  The  cashier  without  suspecting 
for  a  moment  that  it  was  forgery,  immediately  transferred  the  stock  as 
requested  to  the  presentor  and  gave  him  a  new  certificate.  The  bank, 
of  course,  was  the  loser  by  this  transaction,  but  it  got  some  satisfaction 
in  catching  the  knave  and  putting  him  in  prison. 

Quite  frequently  executors,  administrators  and  other  trustees  re- 
quest the  transfer  of  stock.  What  is  the  proper  course  for  a  bank  to 
pursue  in  such  cases?  Whenever  a  trustee  appears  with  a  request  of 
this  character,  the  cashier  should  ascertain  by  what  authority  he  acts. 
If  he  is  acting  under  a  will,  a  deed,  or  other  instrument,  the  cashier 


43  PRACTICAL   BANKING. 

should  re(]iiiro  hiin  to  present  the  iustrumeut,  or  at  least  a  copy  of  that 
portion  setting  fortli  the  trustee's  authority,  with  proper  proof  or 
authentication  of  its  validity. 

An  administrator  is  appointed  by  a  court  to  administer  on  the 
affairs  of  deceased  persons,  and  a  certificate  granted  by  such  court 
is  sutficient  evidence  of  his  authority  to  transfer  stock  and  to  request 
the  change  to  lie  made  on  the  books  of  the  bank.  As  an  administrator 
is  qualified  to  sell  the  estate  committed  to  his  charge,  a  banlv  is  always 
safe  enough  in  acting  after  the  presentation  of  such  a  certificate.  In 
some  cases  a  banli  also  insists  on  keeping  it  as  a  part  of  tlie  record.  As 
a  certificate  is  inexpensive  this  is  not  a  burdensome  requirement. 

The  authority  of  an  executor  is  a  little  different  because  his  power 
is  limited  by  the' directions  in  the  will.  In  some  cases  he  is  required 
to  produce  a  copy  of  the  will  itself,  or  at  least  of  that  part  relating  to 
his  authority  to  sell  the  stock  of  the  bank.  At  all  events,  a  cashier 
should  satisfy  himself  of  the  executor's  authority  to  act  in  making  a 
transfer  before  completing  it. 

The  same  remark  applies  to  guardians  and  other  representatives. 
They  should  furnish  such  proof  of  their  authority  to  act  as  will  satisfy 
the  law  and  custom  in  the  city  or  place  where  a  bank  is  located. 

In  transferring  stock  to  non-resident  executors  and  administrators, 
different  rules  prevail  among  the  banks  in  the  several  states.  Some 
banks  require  executors  or  administrators  to  qualify  in  tlie  state  where 
their  bank  is  located.  This  is  a,  somewhat  expensive  proceeding,  and 
is  deemed  a  hardship.  In  other  cases  banks  are  willing  to  accept  the 
certificates  granted  by  the  proper  courts  acting  outsiUe  their  own 
states.  The  by-laws  of  many  banks  provide  how  transfers  must  be 
made  by  non-resident  owners  of  stoclc.  or  their  representatives. 

Another  mode  of  making  transfers  is  to  give  a  bond  of  indemnity  to 
satisfy  the  bank  in  the  event  of  any  loss  arising  from  an  administrator 
or  executor's  lack  of  power.  This  is  not  an  uncommon  mode  of  obviat- 
ing a  bank's  objection  to  receiving  the  letters  of  foreign  executors  and 
administrators. 

In  Massachusetts,  by  statute,  a  foreign  executor  or  administrator 
may  transfer  or  sell  the  shares  of  any  banlv  located  in  lliat  state 
without  taking  out  letters  of  administration.  He  may  obtain  a  license  for 
doing  this  issued  under  restrictions.  One  is  that  it  shall  not  be  granted 
to  any  foreign  executor  or  administrator  until  after  the  expiration  of  six 
months  from  the  date  of  the  death  of  the  testator  or  intestate.  The 
fact  must  also  appear  that  there  is  no  executor,  administrator  or 
guardian  appointed  in  Massachusetts  who  is  authorized  to  sell,  transfer, 
or  receive  such  shares.  This  is  an  inexpensive  process  and  a  great 
improvement  over  the  old  one  of  taking  out  letters  of  administration 
and  giving  bond  as  required  in  the  regular  settlement  of  an  estate. 

Notwithstanding  all  the  care  practiced  l>y  banks  in  transferring 
stock,  accidents  happen  in  which  they  are  losers.    Not  many  years  ago 


SHAREHOLDERS   AND   THE  TRANSFER  OF   STOCK.  43 

a  savings  bauk  in  New  Yorlv  held  stock  in  a  national  bank  lot-atoil  in 
New  York  city.  Its  broker  in  New  York  presented  himself  to  the  bank 
with  the  certificates  of  stock  and  a  power  of  attorney  signed  by  the  treas- 
urer of  the  savings  bank,  duly  witnessed.  Accompanying  the  power  of 
attorney  and  the  certificate  was  a  copy  of  a  vote  to  the  effect  that  the 
board  of  investment  had  authorized  the  treasurer  to  sell  and  transfer 
the  stock.  The  papers  were  in  the  handwriting  of  the  treasurer  of  the 
savings  bank  without  any  other  names  or  seals.  Tiie  New  Y'ork  bank 
declined  to  make  the  transfer,  saying  that  the  whole  transaction 
evidently  indicated  that  one  man  had  done  the  entire  thing.  In  other 
words,  the  bank  officer  doubted  whether  authority  for  the  sale  of  the 
stock  had  been  conferred  in  the  manner  indicated  bj'  the  papers.  To 
repeat  once  more,  a  bank  cannot  be  too  careful  in  looking  into  the 
authority  of  every  agent  who  presents  a  certificate  for  transfer. 
Rightly,  a  bank  is  held  responsible  for  any  errors  it  may  make  in 
transferring  stock  without  adequate  authority  on  the  part  of  those  who 
assume  to  be  the  owners  or  agents. 

In  delivering  a  certificate,  it  hardly  need  be  mentioned  that  a  bank 
officer  should  assure  himself  that  the  person  claiming  it  is  the  rightful 
owner  or  representative.  Personal  identification  is  not  unreasonable. 
Banks,  we  believe,  usually  require  it,  and  no  person  who  is  entitled  to 
a  certificate  should  object  to  complying  with  this  reasonable  demand. 
When,  however,  it  is  difficult  to  find  any  person  who  knows  the  pre- 
sentor,  banks  sometimes  permit  him  to  identify  himself  by  papers, 
letters,  and  other  evidences  that  he  may  have  in  his  possession.  This, 
however,  is  of  an  inferior  character,  and  a  positive  identification  is 
much  better.  The  use  of  signatures  is  somewhat  risky,  because  experi- 
ence has  shown  that  it  is  somewhat  easy  for  one  to  learn  the  art  of 
making  the  signature  of  another. 

Next  to  personal  delivery  the  express  is  the  best  mode.  The  reason 
is  because  a  receipt  is  given  for  the  parcel,  which  should  be  preserved 
and  attached  to  the  stub,  as  this  furnishes  satisfactory  evidence  of  a 
good  delivery. 

The  mail  is  the  last  and  most  objectionable  method  of  making  a 
delivery.  When  a  bank  is  requested  to  deliver  a  certificate  in  this 
manner,  the  risk  is  borne  by  the  person  making  the  request.  This  is 
the  rule  generally  whenever  money  or  anything  else  is  sent  through  the 
mail.  It  becomes  the  agent  of  the  person  making  the  request;  but  there 
is  danger  of  a  loss,  and  a  lost  certificate  may  cause  difficulty.  If  sent 
in  that  manner,  it  should  be  registered,  and  every  precaution  taken  to 
insure  its  safe  delivery.  The  government  assumes  no  risks  for  any- 
thing transmitted  through  its  agency,  while  an  express  company  does 
assume  them,  and  consequently  some  choose  to  pay  the  additional 
charge  and  gain  the  security  afforded  by  this  mode  of  transmission. 

Many  of  the  older  banks  have  on  their  stock  lists  the  names  of 
estates  that  are  holders  or  owners  of  stock   which   has  never  been 


44  PRACTICAL  BANKING. 

divided  among  its  real  owners.  In  many  cases  it  Is  desirable  for  stock 
to  be  held  in  the  name  of  guardians,  executors  and  otlier  trustees.  On 
the  other  hand,  there  are  other  cases  in  which  executors,  administrators 
and  trustees  ought  to  transfer  the  stock  held  by  them  to  the  rightful 
owners  and  close  up  their  business.  The  cases  are  numerous  in  which 
trustees  prolong  their  trust  to  the  injury  of  the  persons  who  are  the 
rightful  owners  of  money,  stocks  or  other  property  in  their  possession. 
It  may  be  a  delicate  thing  for  a  bank  officer  to  insist  on  making  a 
transfer  of  stock,  yet  he  doubtless  would  well  serve  many  parties  if 
he  insisted  on  this.  Trustees  as  well  as  other  persons  are  sometimes 
dilatory  in  executing  their  trusts,  and  prodding  by  a  bank  officer  might 
come  with  very  good  grace,  as  he  can  easily  show  that  it  is  always 
desirable  for  a  bank  to  have  its  stock  held  by  its  real  owners  unless 
some  good  reasons  exist  for  holding  it  otherwise.  Trust  relations  are 
more  complicated  than  any  other,  and  while  a  bank  for  a  good  reason 
is  always  willing  to  enter  into  and  maintain  them,  yet  it  seeks  to  bring 
them  to  an  end  as  soon  as  the  reason  for  their  creation  has  ceased  to 
exist.  When  an  administrator  or  executor  has  had  ample  time  to  pay 
the  indebtedness  of  his  estate,  and  to  divide  its  assets,  he  is  negligent 
if  not  doing  so;  and  a  bank,  therefore,  is  justified  in  insisting  on  having 
stock  thus  held  transferred  at  the  earliest  reasonable  time. 

Sometimes  certilicates  are  lost,  and  then  the  question  arises,  What 
shall  be  done?  When  a  certificate  is  supposed  to  be  lost,  the  owner  is 
sometimes  impatient  and  perhaps  a  little  nervous  and  thinks  that  the 
quickest  remedy  is  to  apply  to  a  bank  for  another  certificate.  When- 
ever a  person  presents  himself  to  a  bank  with  such  a  story,  the  official 
in  charge  of  the  matter  should  assure  himself  that  a  most  thorough 
search  has  been  made  before  issuing  another.  More  than  one 
case  has  happened  in  which  a  person  has  been  kindly  requested  to 
make  a  further  search  and  the  missing  certificate  has  been  found. 
After  a  most  thorough  search  has  been  made  without  finding  it,  another 
may  be  issued  in  such  a  manner  as  to  indicate  that  it  is  a  duplicate, 
and  issued  in  the  place  of  one  supposed  to  be  lost;  and  a  bond  of 
indemnity  should  be  taken  to  secure  the  bank  against  loss  should  the 
first  one  ever  be  presented.  As  this  bond  is  quite  similar  in  many 
respects  to  the  bond  required  on  other  occasions  an  example  may  be 
given.  It  will  be  seen  that  by  making  slight  changes  this  bond  may 
be  used  for  other  purposes,  for  example,  by  a  foreign  executor  or 
administrator. 

Sometimes  stockholders  change  their  names  and  desire  a  new 
certificate.  This  happens  especially  when  women  are  married.  When 
this  delightful  event  in  her  life  occurs,  it  is  desirable  to  have  a  new 
certificate  made,  as  a  banlv  at  all  times  ought  to  know  the  names  of  its 
shareholders.  In  making  a  transfer  of  tliis  kind  the  owner,  suppose  her 
name  was  Susan  Jones  and  her  married  name  is  Smith,  should  fill  out 
the  transfer  thus:      "Susan  Smith,  formerly  Susan  Jones."    It  hardly 


SHAREHOLDERS   AND   THE   TRANSFER  OF   STOCK.  45 

need  be  added  that  the  bank  should  assure  itself  of  dealing  with  the 
same  person  in  making  the  transfer. 

Until  a  transfer  is  made  on  the  books,  the  real  owner  of  the  capital 
stock  of  a  national  bank  is  liable  for  its  losses,  as  already  described, 
not  exceeding  the  par  value  of  his  stock.  Again,  any  person  may 
become  liable  who  holds  himself  out  as  the  owner  of  shares  by  allowing 
himself  to  appear  as  the  registered  owner  on  the  books  of  the  bank. 
And  if  the  real  owner  of  shares  transfers  them  to  another  person, 
or  has  them  placed  on  the  books  of  a  bank  in  the  name  of  another  person 
simply  to  evade  his  liabilities  as  a  shareholder,  nevertheless  he  remain"? 
liable  like  any  other.  Lastly,  if  a  person  receives  shares  of  a  bank  as 
collateral  security  for  a  debt  with  a  power  of  attorney  authorizing  him 
to  transfer  the  same  on  the  books,  and,  unwilling  to  incur  the  responsi- 
bility of  a  shareholder,  he  has  them  transferred  to  another  by  virtue 
of  an  agreement  that  they  are  to  be  held  as  security  for  the  debt  due 
from  the  real  owner  to  the  creditor,  he  is  not  liable  as  a  shareholder. 
It  may  also  be  added  that  generally,  when  shares  are  pledged  as 
collateral  security,  the  pledgee  is  not  regai'ded  as  the  real  owner  and 
the  pledgor  remains  still  liable  as  a  stockholder  for  the  debts  of  the 
bank,  as  prescribed  by  the  statute. 

In  every  case  some  one  is  liable,  and  whenever  a  bank  fails  attempts 
are  often  made  to  evade  liability.  In  many  cases  shareholders  have 
ti'ansferred  their  ownership  simply  to  evade  liability,  but  courts  look 
with  no  favor  on  such  transfers.  It  may  be  difficult  to  prove  that  they 
were  made  to  avoid  liability,  but  whenever  the  proof  appears,  the 
parties  are  held  accordingly.  In  one  of  the  most  recent  cases  the  court 
remarked  that  only  slight  evidence  was  needful  to  show  that  the 
transfer  was  made  simply  to  avoid  liability.  Whenever  a  bank 
fails  soon  after  a  transfer,  or  the  pledgee  is  an  irresponsible  person, 
these  facts  alone  furnish  strong  evidence  that  the  transf?r  was  not  an 
actual  sale  of  the  stock,  but  made  simply  to  avoid  liability. 

"NVe  have  said  that  in  all  cases  some  one  is  liable  and  this  rule  is 
without  exception.  Consequently  societies  that  are  shareholders  are 
liable  like  other  shareholders  of  a  bank.  So  are  wards,  but  their 
trustees  or  guardians  are  not  personally  responsible.  Nor  do  married 
women  escape,  but  are  liable  like  others  for  an  amount  equal  to  the 
par  value  of  their  stock  should  so  much  be  required  to  discharge  the 
debts  of  the  bank. 

The  liability  ol  stockholders  in  state  banks  differs  from  national 
bank  stockholders,  but  the  tendency  of  late  years  among  the  state 
legislatures  has  been  to  increase  the  liabilities  of  shareholders.  The 
effect  should  be  to  lead  them  to  exercise  more  vigilance  in  conducting 
their  institutions.    Concerning  this  more  will  be  said  in  another  chapter. 


46  PRACTICAL  BANKING. 


CHAPTER  V. 


ANNUAL   MEETINGS.    ELECTION   OF  OFFICERS. 


During  the  first  month  of  the  j'ear  national  banks  are  required  to 
hold  their  annual  shareholders'  meeting.  The  state  banks  observe  a 
similar  requirement,  though  the  time  of  holding  it  may  not  be  the 
same.  At  these  meetings  the  president  presides  and  the  cashier  serves 
as  a  clerk.  Every  shareholder  is  entitled  to  one  vote  on  a  share,  and 
shareholders  maj'  vote  by  proxies,  though  no  officer  of  a  national  bank 
can  thus  act.*  No  shareholder,  however,  who  is  liable  on  his  shares  can 
vote  on  them. 

The  power  of  attorney  given  to  a  person  to  act  as  proxy  is  very 
simple,  and  as  it  is  frequently  used  in  bank  matters  a  form  may  be 
given. 

PROXY. 


Know  all  Men  by  these  Presents: 

Xhat  I do  hereby  constitute  and  appoint 

my  attorney  and  agent  for  me,  and  in  my  name, 

place  and  stead,  to  vote  as  my  proxy  at  the  election  of  Directors  of  The  Indiana  Trust 

Co.,  OF  Indianapolis,  Ind.,  on according  to  the  number  of  votes 

I  should  be  entitled  to  vote  if  then  personally  present. 

In  Witness  Whereof,  I  have  hereunto  set  my  hand  and  seal, 

this  day  of one  thousand 

eight  hundred  and  ninety 

(Seal.) 

Sealed  and  delivered  in  presence  of 


The  by-laws  usually  state  the  day  in  the  month  when  the  annual 
meeting  is  to  be  held,  and  describe  the  notice  that  must  be  given  to 
the  shareholders.  This  requirement  should  be  carefully  observed.  Due 
notice  should  be  given  whether  anybody  is  expected  to  attend  or  not. 
Indeed,  it  is  well  in  all  matters  to  follow  the  strict  requirements  of  the 
law,  and  not  to  fall  into  neglect  through  the  belief  that  shareholders 


♦The  Controller  holds  that  a  director  also  cannot  thus  act. 


ANNCVI.  MKKTINGS— ELECTION  OF  OFFICERS.  4? 

will  never  know,  or  if  kuowiug  do  not  care,  whether  the  law  is  observed 
or  not. 

In  like  manner,  when  persons  act  as  proxies,  attention  should  be 
paid  to  the  powcM*  of  attorney  jriven  by  tlieni  and  a  proper  record  be 
made  of  their  authority  to  act.  (Jenerally,  the  annual  meetings  of  banks 
and  corporations  are  very  perfunctory  affairs;  this  ought  not  to  be. 
The  Canadian  banks  set  an  example  which  the  banks  of  the  United 
States  might  wisely  follow.  The  manager  usually  prepares  an  elab- 
orate, printed  statement  describing  the  gains  and  losses  of  the  bank 
during  the  .vear  and  the  reasons  for  them,  the  condition  of  business 
generally,  witli  such  suggestions  as  ma.v  occur  to  him  for  increasing 
the  l)usiness  of  the  bank.  When  he  has  fiuislied  reading  the  statement, 
the  president  often  adds  some  remarks.  Then  the  sliareholders  are 
requested  to  discuss  tlie  report  of  tlie  manager  and  to  asic  questions,  to 
which  the  manager  responds.  If  the  banks  in  this  country  followed 
the  Canadian  practice,  we  venture  to  say  there  would  be  fewer  bank 
failures.  There  should  be  greater  publicity  in  the  management  of  our 
Joint  stock  undertiikings,  and  especially  with  their  shareholders.  They 
are,  in  truth,  deeply  interested,  lint  in  most  cases  are  blind  owners, 
trusting  everytliiug  to  the  persons  chosen  to  manage  their  affairs.  It 
often  happens  that  directors  and  managers  betray  their  shareholders, 
and  when  an  explosion  occurs  then  it  is  learned  that  perhaps  for  years 
the  concern  was  negligently  or  unlawfully  managed.  During  that 
period  annual  meetings  had  indeed  been  held,  but  no  one  was  present, 
no  reports  were  made,  no  questions  asked,  so  nothing  really  was  known. 
A  friend  of  the  writer  a  few  years  ago  determined  to  attend  the  annual 
meeting  of  a  company  in  New  York,  in  which  he  was  a  large  share 
holder.  lie  made  his  appearance  at  the  ofhce  of  the  president  and 
made  known  his  intention  of  participating  in  the  meeting.  The  presi- 
dent told  him  that  he  was  very  glad  to  see  him.  wished  that  his  example 
might  be  followed  by  other  shareholders,  invited  him  to  a  seat  and 
then  entered  into  a  conversation  concerning  the  weather  and  every- 
thing except  the  affairs  of  the  bank.  My  friend,  after  waiting  an  hour, 
wondered  when  the  annual  meeting  would  begin,  for  he  knew  that  at 
the  time  of  calling  he  was  only  five  minutes  in  advance  of  the  time 
specified  in  the  notice.  Finally  the  president  said  to  him,  "Oh,  you  have 
come  to  attend  the  annual  meeting,  have  you;  well,  that  is  going  on 
in  the  other  room;  walk  in."  Acting  as  he  was  bidden,  he  discovered 
one  person  who  was  running  the  meeting.  About  an  hour  afterward 
he  attended  another  annual  meeting  with  an  entire  change  of  scene, 
instead  of  vacancy,  several  hundred  were  present.  The  concern  was 
in  the  hands  of  a  receiver.  ^Millions  had  been  lost  through  misman- 
agement and  the  shareholders,  when  it  was  too  late,  were  eager  to  find 
out  everything  they  could  concerning  its  past  management.  Had  they 
attended  former  meetings  and  made  more  inquiries  its  course  might 


48  PRACTICAL   BANKING. 

have  been  different.  It  is  better  to  attend  early  and  inquire  concerning 
the  future  than  to  go  late  and  inquire  into  what  has  been  done. 

Il  is  often  said  that  to  be  successful  a  concern  must  be  intrusted  to 
the  direction  of  one  man  or  body  of  men.  It  is  doubtless  true  that 
not  every  item  of  business  can  be  heralded  abroad,  not  every  contract 
as  soon  as  it  is  made,  yet  it  is  true  that  far  more  detailed  information 
can  be  safely  given  to  shareholders,  and  they  should  insist  on  having  it. 
In  short,  the  practice  of  holding  real  annual  meetings  should  be  more 
general,  of  mailing  inquiries,  of  appointing  committees  of  investi- 
gation, and  of  looking  more  sharply  into  every  nook  and  corner.  With 
many  tlie  feeling  prevails  that  such  inquiries  ai"e  useless,  hopeless,  that 
nothing  is  likely  to  come  of  them,  that  they  are  in  the  minority  and 
could  effect  nothing  if  they  did  attend.  But  this  feeling  should  not 
prevent  any  one  from  doing  his  duty.  It  may  be  that,  even  if  a  person 
were  alone  in  his  objections  or  inquiries,  he  would  set  other  share- 
holders to  thinking  who.  at  a  subsequent  meeting,  might  be  ready  to 
join  him  in  further  inquiries  and  in  pushing  investigations. 

After  the  meeting  has  been  duly  organized,  the  directors  are  chosen. 
The  by-laws  prescribe  how  this  must  be  done,  by  ballot  or  otherwise. 
When  they  have  been  chosen,  then  the  cashier  should  send  a  notice  to 
them  of  their  election.  Very  often  the  directors  are  present  at  the 
annual  meetings  and  the  work  of  the  sliareholders  simply  consists  in 
re-electing  them  and  at  a  later  hour  of  the  same  day  they  meet  for  the 
purpose  of  choosing  a  president.  For.  it  may  be  remarked,  the  pres- 
ident is  always  a  director  and  chosen  by  the  directory.  The  first  act  of 
a  director  after  accepting  office,  or  after  his  re-election,  is  to  take  the 
oath  prescribed  by  the  law.  This  may  be  administered  by  a  not.ary 
pul)lic,  or  by  a  justice  of  the  peace,  and  when  taken  by  national  bank 
directors  must  be  sent  to  the  Controller  at  Washington.  They  need  not 
be  at  the  bank  when  taking  their  oath;  this  may  be  done  elsewhere,  but 
in  no  case  can  the  oath  be  omitted. 


THE  CIRCULATION.  49 


CHAPTER   \'I. 
THE  CIRCULATON. 

One  of  the  principal  sources  of  profit  to  state  banks  in  the  olden 
times  was  on  their  circulation.  Generally,  they  were  not  required  to 
keep  any  reserve;  niauy  of  the  banks  kept  no  specie  to  redeem  their 
notes;  and  banked  on  their  credit,  on  which  there  was  a  clear  profit 
after  deducting?  the  expenses  of  banli  management.  Indeed,  with 
hundreds  of  banks  this  was  their  chief  source  of  gain,  as  no  actual 
capital  was  contributed. 

The  national  bank  system  changed  all  this.  At  the  outset,  it  was 
needful  to  invest  the  entire  capital  of  a  national  bank  in  the  bonds  of 
the  government.  On  the  amount  thus  invested  a  bank  could  get 
ninety  per  cent,  of  the  par  value  of  its  bonds  in  the  form  of  circulating 
notes.  After  the  war  ceased  and  the  government  had  no  more  bonds 
to  sell,  banks  were  permitted  to  invest  portions  of  their  capital  in 
other  ways;  but  the  law  is  none  the  less  strict  in  requiring  an  actual 
capital  to  be  contributed  to  the  shareholders  before  beginning  business. 
Circulating  notes,  however,  may  be  issued  to  the  par  value  of  the 
capital  invested  in  national  bonds. 

They  are  now  divided  into  two  classes  with  respect  to  their  invest- 
ments in  the  securities  of  the  federal  government.  Banks  having  a 
capital  of  $1,50,000.00  or  more  must  still  invest  at  least  $."50,000.00  in 
government  bonds;  while  banks  possessing  a  capital  of  less  than  this 
amount  are  required  to  invest  only  twenty-five  per  cent.  Thus,  a 
national  bank  having  a  capital  of  $50,000.00  is  required  to  purchase 
only  $12,500.00  worth  of  government  bonds. 

The  bonds  are  deposited  with  the  Treasurer  of  the  United  States 
and  must  be  registered.  The  object  of  registering  them  is  to  make 
them  more  secure  against  loss  by  theft  or  otherwise. 

A  bank  can  purchase  coupon  bonds  to  meet  the  requirements  of  the 
law,  and  send  them  to  the  Controller  of  the  Currency  with  the  request 
to  have  them  exchanged  for  registered  bonds,  and  kept  with  the 
Treasurer  of  the  United  States  in  trust  for  the  credit  of  the  association 
depositing  them.  Every  national  bank  has  a  box  in  the  treasury 
office  at  Washington  containing  its  securities,  and  the  boxes  are 
arranged  in  such  a  manner  that  they  can  be  found  without  difficulty. 
Whenever  the  president  or  other  officer  of  a  national  bank  goes  to 
Washington,  it  is  a  common  practice  for  him  to  call  on  the  Treasurer 
and  request  to  be  shown  the  box  containing  the  securities  of  his  bank. 

4 


50  PRACTICAL  BANKING. 

It  is  worth  adding  that  during  all  these  years  since  establishing  the 
national  banlv  system,  the  securities  of  no  national  bank  in  the  keeping 
of  tlie  Treasurer  have  ever  been  lost  or  displaced,  though  the  amount 
aggregates  many  millions,  and  banks  are  constantly  changing  them. 
They  sell  them  and  buy  others,  and  thus  the  officials  at  Washington 
have  had  frequent  occasion  to  open  these  boxes  during  the  last  thirty- 
four  years. 

When  registered  bonds  are  sent  for  deposit,  they  should  be  assigned 
to  the  Treasurer  of  the  United  States  to  be  held  in  trust  for  the  sending 
association.  In  some  cases  registered  bonds  are  issued  directly  to  the 
Treasurer  in  trust.  The  mode  of  assigning  them  is  described  in  a  note 
printed  on  the  back,  so  that  no  one  need  fail  to  assign  them  in  the 
proper  manner.  When  the  registered  bonds  are  received,  they  can  be 
transferred  on  the  books  of  the  Registrar  of  the  Treasury,  and  new 
bonds  issued  to  the  Treasurer  in  trust  for  the  bank  in  accordance 
with  the  assignment.  Every  bank  should  be  careful  to  write  its 
corporate  name  correctly,  and  in  every  case  the  board  of  directors  must 
authorize  the  ti-ansfer.  which  must  accompany  tlie  request  for  trans- 
ferring them.  Such  a  transfer  cannot  be  done  simply  by  the  request 
of  the  president  of  the  bank  or  other  office!',  but  only  in  the  manner 
described. 

The  most  convenient  method  of  depositing  registered  bonds  is  to 
send  them  to  the  Controller  properly  assigned,  as  we  have  explained, 
requesting  him  to  have  them  transferred  to  the  Treasurer  in  trust  and 
also  requesting  him  to  send  a  receipt  stating  that  the  bonds  are  thus 
held  in  trust  for  the  association,  on  whose  behalf  the  transfer  is  made, 
and  as  a  security  for  the  redemption  and  payment  of  any  circulating 
notes  that  may  be  delivered  to  the  association.  An  assignment  or 
transfer  of  such  a  bond  by  the  Treasurer  is  deemed  invalid  unless 
countersigned  by  the  Controller  of  the  Currency. 

The  Controller  authorizes  payment  of  interest  on  the  bonds  to  the 
bank  depositing  them,  and  the  Treasurer  pays  it  by  check  to  the  order 
of  the  bank,  payable  at  any  United  States  assistant  treasury,  or  United 
States  depository. 

Having  complied  with  the  law  in  depositing  registered  bonds,  a 
national  bank  is  then  prepared  to  receive  its  circulation.  It  is  not 
required  to  talce  this  out,  but  having  invested  its  capital,  or  a  portion, 
in  this  manner,  is  usually  desirous  of  utilizing  its  credit  by  getting 
as  many  notes  as  the  law  permits.  Indeed,  for  many  years  the  banks 
have  been  contending  that  aut-hority  should  be  granted  to  them  to 
receive  circulation  to  the  par  value  of  their  bonds,  but  thus  far 
have  failed  to  secure  this  amendment  to  the  law.  As  many  of  the 
banks  have  paid  a  considerable  premium  on  their  bonds,  the  profits 
on  note-issuing  have  been  so  small  that  the  banks  have  us-ually  invested 
in  this  way  only  the  smallest  amount  of  their  capital  needful  to  comply 
with  the  law.    Had  the  premium  been  lower,  or  the  banks  been  author- 


THE  CIRCULATION. 


51 


Ized  to  issue  notes  to  a  larger  amount,  they  would  have  invested  a 
much  larger  portion  of  their  capital  in  the  obligations  of  the  govern- 
ment. For  several  years,  when  the  premium  was  very  high,  the  banks 
believed  there  would  be  more  profit  in  selling  bonds  they  held  in 
excess  of  the  legal  amount  for  the  large  premium  they  commanded, 
than  in  keeping  them  as  a  basis  for  issuing  notes.  In  other  words, 
more  money  was  to  be  made  by  selling  their  bonds  at  a  premium  and 
investing  the  avails  in  other  ways,  than  in  keeping  their  capital  thus 
invested  notwithstanding  the  privilege  of  issuing  notes.  A  few  ex- 
amples may  be  given  showing  the  profits  on  issuing  notes  based  on 
bonds  purchased  at  par,  or  at  a  premium. 


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5S  Practical  bankixO. 

It  will  be  seen  from  these  .examples  that  the  profits  in  most  cases 
on  issuing  notes  are  very  small,  and  are  not  a  tempting  source  of 
business.  As  the  profits  in  banliing  are  declining,  banks  are  turning 
with  more  longing  to  the  old  system  of  state  banliing,  under  which 
large  profits  were  made  in  issuing  notes.  This,  in  truth,  is  the 
explanation  in  part  of  the  constant  agitation  in  favor  of  a  radical 
change  in  the  system  of  bank-note  issuing. 

The  enemies  of  this  system  used  to  say  that  it  was  open  to  condemn- 
ation because  double  profits  were  acquired— one  from  the  interest  on 
the  bonds  deposited  with  the  government,  and  the  other  from  the 
profits  on  the  notes.  There  is  nothing  in  this  criticism,  for  the  system 
in  this  respect  is  not  a  whit  different  from  the  systems  that  formerly 
prevailed.  If  the  shareholders  of  a  bank  actually  contributed  capital 
at  the  time  of  organizing  it,  or  afterward,  they  received  interest  on  its 
use  as  well  as  on  the  notes  issued  by  the  bank  itself. 

The  notes  issued  by  the  bank  are  furnished  by  the  government. 
The  government  buys  the  paper  on  which  they  are  printed,  makes  the 
designs  and  prints  them,  and  delivers  them  free  of  cost  to  the  receiving 
bank  except  the  express  charges  for  sending  the  notes  and  the  plate. 
When  sent,  they  are  complete  lacking  the  signatures  of  the  cashier  and 
president.  We  have  no  space  here  to  describe  the  peculiarities  of  the 
paper  on  which  they  are  made,  nor  the  process  of  mailing  them,  nor 
the  checks  adopted  by  the  printing  and  engraving  department  to  pre- 
vent the  printing  and  issuing  of  any  beyond  those  rightfully  demanded. 
These  matters  have  been  explained  on  many  occasions,  and  a  refer- 
ence to  some  of  the  sources  of  information  will  suffice.  It  may  be 
added,  however,  that  for  a  long  while  outside  companies  were  strongly 
opposed  to  the  undertaking  by  the  government  of  the  business  of 
engraving  and  printing  its  securities  and  bank-notes,  and  endeavored 
to  break  up  that  department.  It  was  contended  that  the  government 
could  not  do  the  work  as  cheaply  and  well  as  outside  companies,  that 
there  wei'e  more  risks  of  loss  attending  the  business,  and  for  several 
years  it  seemed  quite  doubtful  whether  the  government  would  weather 
the  storm  of  opposition  that  was  continually  beating  against  it  for 
attempting  to  do  this  work.  It  has,  however,  outlived  all  opposition, 
and  wtiile  some  irregularities  have  taken  place,  only  a  few  losses  have 
occurred,  and  these  have  been  very  slight— not  enough  to  embarrass 
either  the  govei'nment  or  any  bank. 

The  Bank  of  England  makes  its  own  paper  and  prints  its  notes;  so 
does  the  Bank  of  France.*  The  printing  by  the  English  bank  is  done 
in  an  upper  story  of  the  bank  building  on  Threadneedle  street. 


*HOW  FRENCH  BANK  NOTES  ARE  MADE.— All  bills  are  is- 
sued by  the  Bank  of  France,  which  carries  on  the  whole  process  of 
manufacture,  including  even  that  of  tlie  paper  on  which  they  aro 
printed,  and  the  ink  used.  The  paper  factory  is  at  La  Ferte-sous-Jou- 
arre,  where  linen  rags  are  so  treated  as  to  produce  a  paper  of  a  peculiar 


THE  CIRCULATION.  53 

The  designs  on  our  bank  notes  are  radically  different  from  those  on 
the  Baulv  of  England  notes.  These  are  printed  on  white  paper,  thin 
and  crisp,  and  are  few  and  simple.  Our  notes  are  made  on  a  radically 
different  principle.  Elaborate  designs  and  colored  inks  are  used 
because  It  is  believed  the  notes  cannot  be  so  easily  counterfeited.*  In 
1820  "a  great  outcry  was  raised  against  the  Bank  of  England  for  not 


quality.  This  special  paper  is  made,  inspected,  cut  into  sheets  and 
shipped  to  Paris  under  the  care  of  two  of  the  bank  officials,  who  are 
held  responsible  for  every  sheet. 

The  slieets  are  packed  in  bundles,  of  1,000  in  each,  and  are  printed 
in  the  basement  of  the  bank  building  in  Paris.  As  with  the  blank 
paper,  tlie  bills,  in  every  stage  of  fal)rication,  are  in  charge  of  some 
othcial,  who  must  account  for  every  one  whicli  has  come  into  his  hands, 
either  by  showing  it,  or  a  receipt  given  for  it  by  the  official  to  wliom 
he  has  handed  it  over.  As  the  bank  has  sometimes  printed  400.000 
bills  a  day,  and  at  such  periods  employs  about  400  persons  in  the  print- 
ing di'partment,  strict  accounts  are  necessary  to  prevent  loss,  and  an 
elaborate  system  of  numbering  and  cheeking  is  used. 

A  series  of  bills  consists  of  1,000,  which  are  numbered  fom  1  to 
1,000,  and  twenty-five  series,  lettered  A,  B,  G,  etc.,  and  tied  up  together, 
under  the  name  of  an  "alphabet."  After  each  operation,  the  bills  are 
verified  by  women,  who  sign  their  names  on  the  band  placed  around 
the  bundles.  As  there  are  nine  operations,  there  must  be  nine  verifica- 
tions, and  the  final  verification  is  repeated,  by  a  fresh  set  of  inspectors, 
so  that  nothing  can  be  overlooked.  After  the  bills  are  complete  they  are 
delivered  to  the  secetary  of  the  bank,  Avho  examines  them  and  gives  a 
receipt  for  them,  discharging  the  head  of  the  printing  department  from 
further  responsibility.  They  are  then  placed  in  the  vaults  and  are 
withdrawn  for  issue  only  by  order  of  the  governors  of  the  bank. 

The  principal  difficulty  in  regulating  the  accounts  comes  from  the 
defective  bills.  No  bill  is  allowed  to  pass  the  inspectors  whicli  shows 
a  spot,  an  uneven  margin,  a  defect  in  printing,  or  any  other  imperfec- 
tion, and  the  bills  thrown  out  must  be  recorded  in  the  books  with  quite 
as  much  accuracy  as  those  which  pass  successfully  to  the  final  stage. 
Every  bill  rejected  by  the  inspectors  is  stamped,  and  its  place  in  the 
series  filled  by  a  check.  The  stamped  bills  go  to  the  secretary  of  the 
bank,  who  puts  them  under  lock  and  key,  and  new  bills  corresponding 
to  the  checks,  are  printed,  and  credit  is  given  to  the  paper  manufactory 
for  the  paper  necessary  to  make  these. 

The  accounts  of  the  "faulted"  l)ills  are  carried  through  the  books, 
and  for  verification,  the  stamped  bills  themselves  are  kept  for  five  years. 
At  the  end  of  that  time,  if  there  has  been  no  question  about  them,  the 
regents  of  the  bank,  the  secretary,  the  examiners,  the  chiefs  of  the 
printing  department  and  the  chiefs  of  the  department  of  bill  accounts, 
join  in  signing  an  order,  in  pursuance  of  which  they  are  taken  from  the 
vaults  and  destroyed.— Le  (Jenie  Civile. 

*In  truth,  the  complexity  of  the  engraving  on  the  face  and  reverse 
of  our  paper  money  affords  a  better  opportunity  for  successfully  counter- 
feiting than  the  paper  money  of  any  other  country.  There  are  nine 
denominations  of  currenc.v,  and  in  each  denomination  there  are  three 
classes,  treasury  notes  of  18!K),  silver  certilicates  and  greenbacks,  mak- 
ing a  total  of  twenty-seven  kinds  of  money  in  circulation,  each  having 
a  design  of  its  own.  These  designs  are  fn>quently  so  similar  as  to  per- 
mit of  raising.  A  .fl  bill  of  any  one  class  can  be  raised  to  $10,  and 
frequently  passes  on  the  unsuspecting. 


D4  PRACTICAL  BANKING. 

adopting  a  style  of  note  which  could  not  be  imitated,  so  as  to  prevent 
the  sad  sacrifice  of  life  which  at  this  period  was  rapidly  becoming  of 
common  occurrence,  the  punishment  for  forgery  being  death.  The 
subject  at  last  assumed  so  pressing  a  character  that  the  government 
appointed  commissioners  to  investigate  the  causes  of  the  numerous 
forgeries,  and  whether  a  mode  could  be  devised  whereby  the  manu- 
facture of  counterfeit  l)anli  notes  might  be,  if  not  effectually  prevented 
altogether,  at  least  made  an  exceedingly  difficult  operation. 

"Previous  to  this  investigation  the  directors  of  the  banli  had  been 
endeavoring  to  remedy  the  evil,  many  plans  having  been  from  time  to 
time  submitted  to  them  by  various  expei'ts,  ail  of  which,  however,  they 
were  obliged  ultimately  to  reject.  At  one  time  they  were  on  the  point  of 
actually  udopting  a  curious  and  very  costly  machine  for  printing  the 
note  on  both  sides  so  identical  in  every  respect  as  to  appear  but  one 
impression,  when  a  worliman  who  had  evidently  been  carefully  con- 
sidering the  merits  of  the  proposed  project  came  forward  and  proved 
by  practical  demonstration  before  the  members  of  the  committee  that 
the  same  thing  might  be  done  by  the  simple  contrivance  of  two  plates 
connected  by  a  hinge.  Altogether  the  banli  placed  before  the  commis- 
sioners one  hundred  and  eighty  different  schemes  Avhich  had  been 
recommended  for  their  adoption,  and  seventy  varieties  of  paper  made 
at  their  manufactory  by  way  of  experiment,  in  which  almost  every 
alteration  suggested  for  adoption  had  been  tried.  The  result  of  these 
laborious  experiments  and  investigations  was  the  bank  note  of  the 
present  daj'.  The  notes  now  in  use  are.  in  fact,  the  most  elaborately 
manufactured  'bits  of  paper'  imaginable.  The  paper  alone  is  remarlc- 
able  in  many  ways— notably  for  its  unique  whiteness  and  the  peculiar 
'feel'  of  crispness;  while  its  combined  thinness  and  transparency  are 
guards  against  two  once  very  popular  modes  of  forgery;  the  washing 
out  of  the  printing  by  means  of  turpentine,  and  erasure  with  the  knife. 

"The  wiremark,  or  watermark,  is  another  precaution  against 
counterfeiting,  and  is  produced  in  the  paper  while  it  is  in  a  state  of 
pulp.  In  the  old  manufacture  of  bank  notes  this  watermark  was 
caused  by  an  enormous  number  of  wires  (over  two  thousand)  stitched 
and  sewed  together;  now  it  is  engraved  in  a  steel-faced  die,  which  is 
afterwards  hardened,  and  is  then  applied  as  a  punch  to  stamp  the 
pattern  out  of  plates  of  sheet  brass.  The  shading  of  the  letters  of 
this  watermark  further  increases  the  difliculty  of  imitation.  The  paper 
is  made  entirely  from  new  white  linen  cuttings— never  from  anything 
that  has  been  worn— and  the  toughness  of  it  may  be  rouglily  estimated 
from  the  fact  that  a  single  bank  note  will,  when  unsized,  support  a 
weight  of  thirty-six  pounds.  The  paper  is  produced  in  pieces  large 
enough  for  two  notes,  each  of  which  exactly  measures  five  inches  by 
eight  inches,  and  weighs  eighteen  grains  l)efore  it  is  sized;  and  so 
carefully  are  the  notes  prepared  that  even  the  number  of  dips  Into  the 
pulp  made  by  each  workman  is  registered  on  a  dial  by  machinery. 


THE  CIRCULATION.  55 

"Few  people  are  aware  that  a  Bank  of  Euglaud  note  is  not  of  the 
same  thiekuess  all  tbroiigh.  In  point  of  fact  the  paper  is  thicker  in 
the  left-hand  corner  to  enable  it  to  retain  a  keener  impression  of  the 
vignette  there,  and  it  is  also  considerably  thicker  in  the  darlv  shadows 
of  the  center  letters  and  beneath  the  figures  at  the  ends.  Counterfeit 
notes  are  invariably  of  one  thickness  only  throughout.*" 

The  Bank  of  England  never  issues  a  note  the  second  time;  even  if 
sent  forth  in  the  morning  and  returning  in  the  afternoon,  its  flight, 
though  very  brief,  is  over,  and  it  is  put  away  within  that  great  nnancial 
ark  and  kept  for  six  years  and  then  burned.  When  national  banlv  notes 
are  new,  and  all  the  work  on  them  can  be  distinctly  seen,  it  is  quite 
easy  to  detect  a  counterfeit.  No  counterfeit  notes  are  made  either  on 
as  goo(J  paper  or  with  the  same  degree  of  care  as  genuine  bank  notes, 
but  the  excellence  of  the  latter  is  practically  set  at  naught  by  keeping 
them  in  circulation  after  they  have  become  worn.  Banks  are  great 
sinners  in  pushing  into  circulation  notes  which  they  well  know  ought  to 
be  retained  and  sent  back  for  redemption.  It  is  a  little  trouble  to  put  them 
aside.and  there  may  be  a  slight  loss  of  interest  on  such  accumulations, 
but  these  considerations  ought  not  to  weigh  against  the  greater  security 
given  to  the  public  by  keeping  fresh  notes  in  circulation.  If  individ- 
uals insisted  on  receiving  only  clean  notes  from  others,  and  banks 
exercised  more  conscience  in  retaining  imperfect  notes  and  sending 
them  back  for  redemption,  the  stream  of  circulation  would  b3  kept 
clear  and  the  occupation  of  the  industrious  counterfeiter  would  be 
gone.  By  neglecting  this  simple  duty  and  keeping  out  notes  that  are 
badly  torn  and  worn,  counterfeiting  still  flourishes,  and  the  public 
lose  many  times  over  the  cost  of  sending  back  worn  notes  and  the 
expense  and  trouble  of  printing  new  ones  in  place  of  them.  When 
banks,  as  well  as  individuals,  become  more  particular  in  these  regards 
we  shall  hear  much  less  of  counterfeiting. 

Every  bank  should  keep  a  record  of  its  issues,  and  it  is  believed 
that  very  many  banks  keep  a  book  of  this  kind.  A  brief  explanation 
shows  the  need  of  such  a  book.  One  object  of  keeping  it  is  to  show 
what  bills  circulate  the  most  generally,  and  therefore  what  denomina- 
tions are  required  most  when  ordering  new  notes  in  the  first  instance, 
or  in  place  of  those  destroyed.  How  shall  a  bank  determine  how  many 
fives,  tens,  twenties  and  fifties  to  order?  One  method  of  getting  this 
information  is  to  make  inquiries  of  other  banks  concerning  their  experi- 
ence. Anotlier  way  would  be  to  make  inquiry  of  the  Controller  of  the 
Currency  at  Washington.  Another  element  determining  this  question 
is  the  location  of  the  bank,  some  banks  requiring  a  larger  number  of 
smaller  denominations  than  other  banks.  For  the  year  ending  October 
31,  1897,  the  following  circulating  notes  Avere  ordered  by  new  banks: 

♦Cornhill  .Magazine. 


56  PRACTICAL   BANKING. 

Plate  $5  $5  $5  $5 $301,740.00 

Plate  $10  $10  $10  $20 447.250.00 

Plate  $50  $100  62,400.00  * 

Besides  this  record  of  new  circulation  received  from  the  govern- 
ment, another  is  liept  by  the  paying  teller  in  his  cash  book,  or  in  the 
general  scratcher  of  the  receiving  teller.  In  this  record  the  numbers 
on  the  notes  are  also  entered. 

A  national  bank  note  is  a  legal  tender  to  other  banks  and  also  to 
the  government,  but  is  not  a  legal  tender  note  between  individuals. 
It  is  redeemable  in  legal  tender  notes,  and,  if  coin  is  demanded,  it  is 
generally  paid.  As  these  notes  are  quite  as  good  as  those  of  the  gov- 
ernment, a  demand  is  rarely  made  of  a  bank  for  legal  tenders  except 
to  use  in  getting  gold  of  the  government,  or  for  some  particular 
requirement. 

English  people  who  take  Bank  of  England  notes  often  ear-mark 
them  when  they  are  received,  putting  the  date  and  initial  of  the  person 
from  whom  they  were  taken. t  The  object  of  this  precaution  is  to  trace 
them  should  this  for  any  reason  become  necessary.  The  bank  itself, 
when  receiving  them,  takes  the  name  and  address  of  the  receiver 
unless  he  is  a  regular  customer.  The  credit  of  these  notes,  it  may  bo 
remarked,  is  so  perfect  that  they  circulate  all  over  Europe  quite  as 
readily  as  British  sovereigns  or  the  gold  coin  of  any  other  country. 

When  notes  are  sent  by  the  Treasury  Department  to  the  bank 
requesting  them,  the  utmost  care  should  be  used  to  guard  against  their 
loss.  Four  notes  are  printed  on  a  sheet,  and  in  this  form  they  are  sent 
to  their  owners.  They  are  usually  carried  by  express  companies,  at 
the  bank's  expense.  Though  incomplete  in  form,  if  they  should  get 
astray,  it  would  be  easy  for  the  finders,  if  rascals,  to  forge  the  signa- 
ture of  the  president  and  cashier  and  put  them  into  circulation.  A; 
the  persons  receiving  them  are  not  familiar  with  the  signatures  of  the 
president  and  cashier,  these  form  ho  safeguards  against  the  counter- 
feiter. Many  a  note  has  been  circulated,  not  signed  by  the  president 
and  cashier  of  the  bank  purporting  to  have  issued  the  same.    Notes 


♦Four  fives  are  printed  on  one  plate,  three  tens  and  a  twenty  on 
another,  and  a  fifty  and  hundred  on  the  third  plate. 

iThe  following  incident  is  taken  from  the  Boston  Commercial  Bul- 
letin: On  one  occasion  the  cashier  of  the  Bank  of  England  Branch 
Bank  at  Liverpool  made  a  bad  error  in  changing  some  Bank  of  Eng- 
land notes  for  a  stranger.  The  stranger  asked  for  some  small  notes  in  ex- 
change for  £150  in  notes.  Instead  of  passing  him  out  £20  notes  as  the 
cashier  intended,  he  paid  him  an  equal  number  of  £100  notes.  Having 
taken  the  address  of  the  stranger,  the  cashier,  as  soon  as  he  had  dis- 
covered his  mistake,  sent  officers  to  the  Isle  of  Man.  where  ho  had 
voyaged,  and  had  him  arrested.  But  the  arrested  party  turned  out  to 
be  a  very  respectable  citizen,  who  had  just  discovered  the  cashier's 
error  and  who  was  making  all  possible  haste  to  return  the  overpaid 
money. 


THE   CIRCULATION.  57 

arc  not  infrequently  sent  out  of  the  bank  after  they  have  been  received 
to  be  cut  and  trimmed,  and  sometimes  for  the  printing  of  one  or  both 
of  the  signatures.  While  the  law  does  not  forbid  this,  the  Controller 
has  directed  that  the  signatures  should  be  written  by  the  president  and 
cashier.  A  stamp  should  not  be  used.  Notwithstanding  this  order  the 
signatures  are  sometimes  printed.  It  need  not  be  added  when  this 
disposition  is  made  of  them  that  an  officer  of  the  banli  shoiUd  keep 
them  under  his  eye  during  their  entire  absence,  until  the  work  of 
trimming  and  printing  is  completed. 

Whenever  a  bank  fails  or  retires  from  business,  the  government 
is  furnished  with  enough  notes  of  its  own  issue  to  redeem  its  circula- 
tion. The  bonds  of  the  bank  held  by  the  government  are  sold,  and 
always  yield  more  than  enough  to  furnish  the  means  for  redeeming  its 
notes.  But  it  always  happens  when  a  bank  fails  or  retires  from 
business  that  some  of  its  notes  have  been  destroyed,  and  consequently 
will  never  be  presented  for  redemption.  The  difference  between  the 
amount  of  money  held  by  the  government  to  redeem  them  and  the 
amount  of  notes  presented  for  redemption  is  a  clear  gain,  and  at 
present  amounts  to  many  millions.  The  Secretary  of  the  Treasury 
remarked  in  his  annual  report  for  1895  that  "the  gain  to  the  govern- 
ment on  account  of  national  bank  notes  lost  or  destroyed,  and  which 
are  consequently  never  presented  for  redemption,  is  estimated  to  be 
two-fifths  of  one  per  cent,  upon  the  total  amount  issued,  and  has 
according  to  this  estimate  amounted  to  the  sum  of  ?2, 805,715."  Oc- 
casionally a  note  may  be  misplaced  and  preserved  in  a  good  condition 
for  many  yeai-s;  ordinarily  they  are  kept  in  circulation  and  go  back 
for  redemption,  or  are  lost  or  worn  out,  and  thus  pass  out  of  circu- 
lation. 

Many  will  remember  the  fractional  currency  issued  by  the  govern- 
ment during  the  civil  war  to  supply  the  place  of  the  minor  coinage, 
amounting  to  ?!49, 102,600.27.  The  paper  on  which  it  was  printed  was 
not  of  good  qualitj',  and  it  deteriorated  rapidly.  A  few  years  after- 
ward the  government  withdrew  this  currency,  redeeming  it  whenever 
presented.  Although  it  circulated  only  for  a  brief  period  $15,203,036  14 
has  never  been  presented  for  redemption,  and  more  than  half  this  sum 
is  officially  estimated  to  have  been  destroyed. 

The  banks  claim  that  as  the  government  retains  the  gain  from  the 
loss  of  their  circulation  it  ought,  besides  paying  for  the  expense  of 
making  the  notes  and  printing  them,  etc.,  to  pay  all  express  charges 
attending  their  redemption  and  issue  of  new  notes  in  place  of  others 
sent  for  redemption.  Thus  far,  however,  the  government  has  not  seen 
fit  to  pay  the  express  charges  only  on  the  notes  sent  to  the  Treasury 
Department  to  be  redeemed. 

What  is  the  mode  of  redeeming  bank  notes?  We  have  already 
explained  that  every  bank  must  redeem  the  notes  issued  over  its 
counter  in  the  legal  tender  notes  issued  by  the  government;  but  there 


53  PRACTICAL   BANKING. 

is  another  mode  of  redeeming  notes  through  the  Treasury  Department 
at  Washington.  At  the  outset,  the  law  providing  for  their  redemption 
did  not  prove  effective,  and  they  remained  in  circulation  until  they 
became  badly  soiled  and  otherwise  impaired,  and  it  was  seen  that  a 
better  method  must  be  devised  of  redeeming  them,  otherwise  they 
would  be  worn  out  and  lost  while  in  the  possession  of  the  people.  So 
in  1874  the  present  system  was  devised.  By  this,  every  bank  is 
re(iuired  to  keep  a  fund  with  the  United  States  Treasurer  equal  to 
five  per  cent,  of  its  circulating  notes.  The  notes  composing  the  fund 
are  issued  by  the  government.  Whenever  a  bank  accumulates  $1,000.00 
of  soiled  notes,  or  multiples  of  that  amount,  issued  by  different  banks, 
they  are  sent  to  the  United  States  Treasurer  for  redemption.  If  a  bank 
requests  treasury  notes  to  be  sent  back  in  lieu  of  those  sent,  it  must 
pay  express  charges  on  the  package;  and  to  escape  payment  of  this 
sum,  it  may  simply  request  a  draft,  on  which  the  money  can  be  obtained 
at  any  sub-treasury  without  expense  to  the  bank.  The  notes  thus  sent 
to  the  Treasurer  are  sorted  and  charged  up  to  the  various  banks  that 
issued  them,  and  then  they  are  cut  into  pieces  and  reduced  to  pulp. 
Formerly  they  were  burned,  but  it  is  not  such  an  easy  thing  to  burn 
all  the  pieces  of  a  bundle  of  bank  notes  as  may  be  imagined,  and 
experience  has  shown  that  the  pulp  process  of  destroying  them  is 
preferable.  When  the  Treasurer  has  redeemed  the  notes  of  any  bank 
to  the  amount  of  $500.00,  it  is  requested  to  send  a  like  amount  to  him 
and  thus  make  its  redemption  fund  good.  One  other  step  still  remains 
to  be  described  in  this  process  of  redemption.  A  bank  whose  notes 
have  been  redeemed  to  the  amount  of  $500.00  can  have  new  notes 
issued  in  place  of  them  to  a  similar  amount,  and  thus  it  will  be  seen 
that  it  is  no  loser  by  the  operation. 

It  may  be  added  that,  at  the  time  of  the  introduction  of  this  system, 
the  bills  in  circulation  were  in  such  a  bad  condition  that  during  the 
first  year  of  its  operation  $13T,697,G9G.OO  worth  of  bills  were  redeemed. 
The  next  year  $98,072,710.00  more  came  in  for  redemption;  in  other 
words,  in  two  years  the  larger  portion  of  the  bank  note  circulation  was 
renewed.*  The  average  life  of  an  American  bank  note  is  about  three 
years. 

Very  often  parts  of  notes  are  missing,  and  regulations  have  been 
made  regarding  their  redemption.  A  bank  that  issues  a  note,  although 
a  portion  of  it  may  be  gone,  is  willing  to  redeem  the  remainder  for  the 
amount  originally  issued  whenever  satisfactory  proof  can  be  made 
that  it  is  the  only  fragment  or  portion  in  existence.  Some  banks 
require  the  presentor  of  a  fragment  to  make  an  affidavit  giving  some 
account  of  the  note,  from  whom  he  took  it.  and  his  reasons  for  doing 
so,  and  his  belief  that  no  other  portion  of  the  note  exists.    The  practice 


*A  table  is  i)ultlisli(>d  in  tlie  Annual  Kcpoi't  of  tlie  Controller  of  the 
Currency  of  the  notes  issued,  redeenu'd  and  outstanding  eacli  year. 


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60  PRACTICAL   BANKING. 

among  banks  is  quite  different  in  tills  I'egard.  The  government,  how- 
ever, has  a  more  rigid  rule  on  the  subject.  It  has  a  "discount  glass" 
which  It  puts  over  such  a  note  for  the  purpose  of  ascertaining  how 
much  is  destroyed.  Notes  that  equal  or  exceed  three-fifths  of  their 
original  proportions  and  bearing  the  name  of  the  bank  and  the  signa- 
tures of  one  of  its  officers  are  redeemed  at  their  full  face  value.  Notes 
of  which  less  than  three-fifths  remain,  or  from  which  both  signatures 
are  lacking  are  not  redeemable  by  the  treasurer,  but  only  by  the  bank 
that  issued  them.  Fragments  less  than  three-fifths,  however,  are 
accepted  from  the  bank  of  issue  for  face  value  by  the  Treasurer  when- 
ever they  are  accompanied  by  satisfactory  evidence  that  the  missing 
portions  have  been  entirely  destroyed.  Fragments  redeemed  by  the 
bank  of  issue  for  less  than  face  value  are  accepted  by  the  Treasurer 
only  when  their  valuation  is  equal  to  the  face  value  of  a  note  of  some 
denomination  Issued  by  a  bank,  or  some  multiple  thereof.  The  re- 
quired valuation  maj'  be  made  up  of  several  fragments  of  notes  of  the 
same,  or  different  denominations,  provided  the  total  valuation  of 
fragments  of  each  denomination  be  $100.00  or  some  multiple  thereof. 
Fragments,  however,  not  equal  to  more  than  two-fifths  are  taken  only 
when  accompanied  by  evidence  that  the  missing  portions  have  been 
entirely  destroyed. 

National  bank  notes  that  are  stolen  when  unsigned  and  put  in 
circulation  with  forged  signatures  are  not  deemed  to  be  notes  of  the 
banks  purporting  to  issue  them,  and  are  not  redeemed  by  the  Treasurer. 
Finally,  the  notes  of  national  banks  that  have  failed  are  redeemed  in 
the  same  manner  and  on  the  same  terms  as  United  States  notes. 

Once  a  year  the  account  for  redeeming  bank  notes  is  made  up  by 
the  government,  the  principal  items  of  which  are  the  cost  of  transpor- 
tation and  assorting.*  The  expense  is  assessed  on  the  banks  in  pro- 
portion to  the  circulation  redeemed.  The  following  letter  received  by 
a  national  bank  in  December,  18'JG.  from  the  United  States  Treasurer 
contains  all  the  details  relating  to  this  expenditure: 

ASSESSMENT  FOR  EXPENSES— 1896. 

TREASURY  DEPARTMENT,  Office  of  the  Treasurer, 

Washington,  D.  C,  December  1,  1896. 

Cashier National Bank. 

Sir:  "The  charges  for  transportation  and  the  costs  for  assorting" 
the  notes  of  National  Banks  redeemed  during  the  fiscal  year  ending 
June  30,  1896,  under  the  act  approved  June  20,  1874  (18  Statutes,  123). 
were  as  follows: 


*See  Controller's  Report  for  1890,  p.  543. 


THE  CIRCULATION,  61 

Charges  for  transportation $32,518.93 

Costs  for  assorting: 

Salaries    $77,700.54 

Printing,  binding  and  stationery 2,82.").97 

Contingent  expenses  974.19 

$81,566.70 

Total   $114,085.63 

These  expenses  haye  been  assessed  upon  the  several  National 
BanlvS  in  proportion  to  the  circulation  redeemed.  The  aggregate 
amount  redeemed  and  assorted  during  the  fiscal  year  was 
.$101,409,451.50,  giving  $1.12yo  as  the  average  rate  for  each  $1,000. 

The  amotint  of  the  notes  of  your  bank  redeemed  and  assorted 
during  the  fiscal  year  was  as  follows: 

Charged  to  five-per-cent.  redemption  account,  as  specified 

in  my  advices  of  redemption $136,320.00 

The  assessment  thereon,  at  $1.12yo  per  $1,000.00,  is 153.36 

This  amount  has  this  day  been  charged  to  your  bank  in  its  five- 
per-cent.  account.  Respectfully  yours, 

,  Treasurer  U.   S. 


62  PRACTICAL  BANKING 


CHAPTER   VII. 
DEPOSITS  AND   DEPOSITORS. 

There  are  two  kinds  of  bank  deposits,  general  and  special.  General 
deposits  are  those  received  by  a  bank  in  the  form  of  money.  Special 
deposits,  in  the  sense  in  which  we  are  now  nsing  the  term,  consist  of 
bonds  and  other  securities  taken  for  safekeeping.  Years  ago.  before 
the  creation  of  safe  deposit  companies,  the  customers  of  banks,  with 
their  permission,  often  deposited  their  securities  Avith  them  for  safe- 
keeping. The  accommodation  was  readily  granted  and  much  appre- 
ciated, because  it  was  the  only  secure  receptacle  in  many  places  for 
kCL-ping  securities.  Since  the  creation  of  safe  deposit  companl(»s  banks 
are  relieved  of  this  duty,  a  duty  which  they  are  very  willing  to  escape. 
Yet  in  many  places  liank  vaults  are  still  the  safest  receptacles  for 
ketping  securities,  and  millions  of  bonds  and  other  valuables  are  kept 
by  them  for  the  accommodation  of  their  customers. 

The  degree  of  care  they  must  exercise  In  keeping  securities  has 
often  been  stated  by  the  courts  on  occasions  of  their  disappearance. 
The  rule  is  that  a  bank  must  exercise  reasonable  care  in  keeping  them, 
but  no  more,  for  the  reason  that  they  are  paid  nothing  for  this  service. 
To  state  the  principle  somewhat  differently,  a  bank  is  not  bound  to 
exercise  as  much  care  in  keeping  securities  to  accommodate  its  cus- 
tomers as  it  would  be  if  it  was  paid  for  keeping  them.  For  example, 
it  is  not  obliged  to  exercise  the  same  degree  of  care  as  a  safe  deposit 
company  that  is  specially  engaged  in  this  business  and  is  paid  for  the 
service. 

Though  the  rule  is  well  understood,  yet  as  the  facts  in  every  case 
differ  somewhat  from  those  in  every  other,  its  application  is  often  dis- 
puted whenever  a  loss  occurs.  Sometimes  the  evidence  of  negligence 
is  so  clear  that  a  bank  pays  the  loss.  In  other  cases  a  bank  feels  sure 
that  it  has  not  been  negligent  and  the  owner,  desirous  of  recovering, 
if  possible,  the  amount,  sues  the  bank,  and  thus  the  question  finally 
reaches  a  court  for  its  decision.  If  we  are  asked.  Who  winsV  our 
reply  is  that  in  the  larger  number  of  cases  the  banks  have  won.  Yet 
the  cases  are  by  no  means  rare  in  which  bank  officers  have  been  negli- 
gent, and  their  institutions  have  been  held  responsible. 


DEPOSITS   AND   DEPOSITORS.  08 

111  a  uote  we  appoiul  a  n^forence  to  some  of  the  more  important 
cases  that  have  been  decided  by  the  courts  during  the  last  thirty  years.* 

Tlierc  is  another  l^iiid  of  special  di'posit,  concerning  which  the  rule 
of  liability  may  be  mentioned.  Di'posits  of  money  are  divided  into 
two  classes,  special  and  general.  Wlieuever  a  special  deposit  of  money 
is  made  and  put  into  the  common  fund  and  used  lilce  any  other,  we 
apprehend  tliat  a  l>anli  is  liable  for  its  loss  in  the  same  manner  as  for 
th(!  loss  of  a  general  deposit.  Whenever  this  is  lost  there  is  no  question 
whatever  concerning  the  bank's  liability,  for,  as  the  relation  of  debtor 
and  creditor  exists  between  a  banl<  and  its  customer,  it  is  responsible 
for  money  received  in  the  same  manner  as  the  maker  of  a  uote  for 
money  loaned  to  him  l)y  the  payee.  No  maker  of  a  note  would  ever 
think  of  defending  on  the  ground  that  the  monej'  given  to  him  by  the 
pa.\e('  had  been  lost.  Having  received  it,  the  money  becomes  his,  and 
he  i.-'  in  duty  bound  to  repay  at  the  proper  time,  regardless  of  its  fate 
while  in  liis  possession.  This  is  no  concern  of  the  lender,  and  the  same 
principle  ai)plies  to  a  special  or  general  deposit  of  money  used  by  a  l)ank. 
If,  however,  a  spi-cial  deposit  of  money  was  made  simply  for  safekeeping, 
then  the  same  rule  would  apply  to  the  keeping  of  it  as  applies  to  the 
keeping  of  any  other  securitj'. 

Many  banks  expect  to  make  their  profits,  or  a  considerable  portion 
of  them  at  least,  from  the  lending  of  deposits.  As  all  know,  the 
deposits  in  some  banks  are  enormously  large,  and  are  the  chief  source 
of  profit.  A  few  examples  may  be  given.  They  are  New  York  City 
J)auks: 

City  National  Bank $128,152,500 

Park  National  Bank 02,253,000 

Hanover  National  Bank 52,913,600 

Western    National 42,007,200 

Chase   National 51,288,700 

First    National 71,992,500 

National  Bank  of  Commerce 00,378.000 

These  sums,  large  as  they  are,  are  very  small  compared  with  the 
deposits  in  some  of  the  great  English  banks.  A  few  examples  are 
added: 

Bank  of  England $283,.583,950 

National  Provincial  Bank 241,500,815 

London  and  County  Banking  Co 210,488,500 

Lloyds'  Bank   101,939,095 

Lond(m  and  Westminster  Bank 13 J,371,0.'{0 

Barclay   ct   Co 121,238.955 


*IMeston  v.  Prather,  1.37  V.  S.  004;  National  Bank  v.  Oraham,  100 
V.  y.  099;  First  Nation:il  Bank  v.  Ocean  National  Bank,  00  N.  Y.  278; 
I'atterson  v.  Syracuse  National  Bank,  80  N.  Y.  82;  Smith  v.  First 
National  Bank,  99  Mass.  005;  Foster  v.  Essex  Bank,  17  ^lass.  479; 
Scott  V.  National  Bank,  72  Pa.  471;  First  National  Bank  v.  Zent,  .39 
Oiiio  St.  105;  Whitney  v.  First  National  Bank,  55  Vt.  154;  Ray  v.  Bank, 
10  Bush  (Ky.)  344:  Third  National  Bank  v.  Boyd,  44  Md.  47. 


64  PRACTICAL  BANKING. 

How,  then,  can  depositors  be  attracted  to  a  bauk?  If  there  is  only 
one  banli  in  a  place,  naturally  all  deposits  will  flow  into  it,  but  if 
there  are  several  banks,  then  deposits  will  be  divided  between  them. 
In  England,  the  practice  of  keeping  bank  accounts  is  more  general  than 
in  this  country,  to  the  obvious  advantage  of  all  concerned.  On  the 
other  hand,  the  practice  of  keeping  bank  accounts  is  more  general  in 
this  countrj'  than  in  France.  Nevertheless,  there  are  many  persons  who 
might  open  accounts  with  banks,  and  by  so  doing  benefit  both  them- 
selves and  the  public.  It  is  true  that  the  savings  banks  draw  a  very 
large  class  of  depositors,  yet  they  do  not  exhaust  the  field.  There  are 
thousands  of  persons  who  severally  receive  every  year  a  considerable 
sum  of  money,  and  if  they  deposited  it  not  only  would  secure  it  from 
loss  by  thieves,  but  also  from  loss  through  wasteful  use.  Habits  of 
thrift  spring  from  the  Ivceping  of  money;  moreover  the  keeping  of  a  bank 
account  tends  to  increase  the  manhood  of  a  person  in  his  own  eyes.  It 
may  indeed  l)e  questioned  whether  a  bank  can  profitably  mix  up  small 
deposits  with  large  ones,  but  a  bank  may  deal  entirely  with  smaller 
depositors,  and  conduct  its  business  in  such  a  way  as  to  extract  a 
reasonable  profit  from  the  undertaking. 

The  persons  who  do  much  business  and  who  receive  .and  pay  checks, 
etc.,  generally  have  baulc  accounts,  and  from  a  lianl;er's  point  of  view, 
the  only  question  concerning  them  is.  how  can  they  be  drawn  from 
other  banks,  and  from  the  depositor's  point  of  view,  what  adv.antaga 
is  to  be  gained  by  clianging  fi'ora  one  bank  to  another.  Every  1>anlv 
understands  its  peculiar  position,  and  what  it  can  do  for  its  customers. 
We  have  already  considered  the  question  of  changing  from  an  old  to 
a  new  or  nearer  institution.  Suppose  that  two  banks  are  located  close  by 
each  other,  and  have  essentially  the  same  field  for  doing  business.  It 
is  quite  evident  that  one  cannot  offer  any  special  advantages  with  the 
hope  of  drawing  depositors  away  from  the  other,  or  expect  to  get  more 
than  its  fair  share  of  new  ones,  for  any  advantages  thus  offered  would 
be  immediately  met  by  counter  advantages  from  the  other  bank.  Never- 
theless, the  business  of  banking,  like  almost  any  other  business,  is 
feeling  the  pressure  of  sharper  competition,  resulting  in  the  giving 
of  new  advantages  to  depositors.  Concerning  the  wisdom  of  granting 
them  l)ankers  maintain  different  opinions.  On  the  other  hand,  it  is 
said  tliat  the  business  of  banlving  is  undertaken  for  the  sake  of  m.aking 
money,  and  that  if  competition  becomes  too  keen,  and  too  many 
advantages  are  offered,  nothing  will  be  left  as  profits,  and  the  business 
prove  delusive  and  unsatisfactory.  On  the  other  hand,  it  is  asked.  Why 
should  not  bankers  compete  for  business,  the  same  as  other  individuals, 
and  lessen,  if  need  be,  their  profits  derived  from  any  particular  cus- 
tomer with  the  hope  and  expectation  of  making  as  mucli  in  the  aggre- 
gate from  the  expansion  of  busini'ss  as  1)efore?  This  is  the  other  way 
of  looking  at  the  question. 

Some  banks,  established  in  large  cities  within  a  few  years,  have 


DEPOSITS   AND   DEPOSITORS.  65 

acquired  a  large  amount  of  deposits  bj*  offering  unusual  facilities 
and  advantages  to  depositors.  The  older  banks,  from  which  many 
of  them  have  been  drawn,  have  well  understood  what  was  going  on. 
Why.  then,  it  may  be  asked,  did  they  not  check  the  current  by  offering 
as  good  or  better  advantages  to  depositors  that  were  thinking  of 
l)reaking  awa.v,  or  who  had  gone,  to  return?  The  answer  is  that  such  a 
course  would  be  a  discrimination  between  depositors  that  would  surely 
bo  found  out  and  cause  ill  feeling.  Suppose  a  new  bank  should  offer 
a  depositor  in  an  old  bank  interest  on  his  deposits  as  an  Inducement  to 
change  his  account?  If  this  were  the  practice  of  the  new  bank,  to  pay 
interest  on  deposits,  it  could  do  so  without  fear  of  offending  any 
depositor,  but  could  an  old  bank  offer  to  pay  interest  on  the  account 
of  a  depositor  who  was  thinking  of  making  a  change  if  consenting  to 
remain,  without  adopting  a  similar  policy  to  all  of  its  depositors? 
Surely  not  without  danger  of  discovery  and  the  withdrawal  of  many  or 
all  accounts. 

To  sum  up  the  course  which  a  banlv  must  pursue  in  order  to  draw 
depositors  depends  on  circumstances.  When  it  is  the  only  bank  in  a 
town  it  ought  to  expect,  if  properly  managed,  to  command  the  con- 
fidence of  everyone,  and  to  attract  all  the  money  they  have  for  deposit. 
Furthermore,  we  repeat,  a  bank  should  encourage  deposits  both  for 
the  profits  that  may  bo  made  on  them  as  well  as  for  the  good  o*'  the 
depositors  themselves.  If  there  are  several  banks  in  the  same  place, 
they  should  observe  such  courtesies  as  will  preserve  the  best  relations 
between  themselves  and  their  customers,  to  grant  such  accommodations 
as  are  usual,  and  in  short  be  guided  by  those  principles  which  common 
sense  clearly  indicates  are  desirable  for  maintaining  the  best  interests 
of  all.  Furthermore,  it  is  not  a  good  policy  for  any  bank  to  try  to  be 
so  much  smarter  than  the  rest.  It  should  remember  that  it  is  an 
institution  of  trust,  that  it  is  dealing  with  money  not  belonging  to 
itself,  and  which  it  has  no  right  to  jeopardize.  There  is  danger,  too, 
that  a  new  departure  may  be  followed  by  others  to  prevent  the  loss 
of  business,  and  in  the  end  all  suffer.  More  than  one  excessively 
ambitious  bank  has  involved  others  in  its  ruin  through  their  efforts  to 
sustain  themselves  by  adopting  its  methods.  As  different  rules  and 
methods  may  be,  and  sometimes  are  adopted  by  a  new  bank  surrounded 
by  old  ones,  the  question  must  be  faced  by  them,  "What  shall  we 
do  to  meet  this  new  condition  of  affairs?"  and  the  answer  must  be  in 
pursuing  such  a  policy  which  in  the  long  run  is  likely  to  be  the  most 
profital)le.  If  this  consists  in  adopting  the  ways  of  the  new  bank. 
as.suming  that  they  are  sound,  then  they  should  be  adopted,  otherwise 
the  old  methods  should  be  preserved. 

When  a  new  bank  is  started  in  an  old  city,  well  supplied  with 
banks,  and  with  new  methods  and  more  inclined  to  favor  depositors 
than  the  old  ones,  in  other  words,  is  contented  with  smaller  profits 
with  the  expectation  of  an  ultimate  increase,  it  is  likely  to  incur  the 
opposition  of  older  rivals.     This  is  to  be  expected,  and  must  be  faced 

5 


36  PRACTICAL   BANKING. 

by  the  new  bank  from  the  start.  But  what  are  the  chances  of  success 
under  such  conditions?  As  we  have  already  said,  a  bank  is  hardly 
justified  in  organizing  to-day  in  any  large  city,  expecting  to  draw 
enough  business  to  make  the  undertaking  profitable  by  offering  unusual 
advantages  over  its  rivals.  The  truth  is,  the  new  bank  is  usually  at  a 
decided  disadvantage  from  having  less  capital,  less  surplus,  less 
experience  among  its  officers,  less  acquaintance  among  men,  and,  in 
short,  from  the  lack  of  credit  and  good  will  surrounding  an  old  institu- 
tion. Suppose  a  new  bank  was  started  by  the  side  of  the  Chemical 
National  Bank  of  New  York,  a  concern  of  world-wide  reputation?  Why 
should  a  depositor  leave  the  Chemical  National  Bank  to  put  his  account 
with  a  neM'  and  untried  institution?  Can  he  get  more  accommodations? 
The  Chemical  has  vastly  larger  resources  than  any  new  bank  could 
have  and  is  always  willing  to  lend  them  on  reasonable  terms.  Will 
the  new  bank  demand  less  security?  Safety  in  lending  is  the  first  and 
cliief  principle  in  successful  banking,  and  a  bank  that  proposes  to 
attract  customers  by  violating  this  is  not  worthy  of  support.  Yet  its 
\  iol.'ition  is  precisely  the  thing  which  new  banks  in  the  larger  cities, 
unless  sustained  l)y  unusually  strong  patronage,  are  too  often  tempted 
to  do  to  get  business.  They  are  therefore  rarely  justified.  In  other 
woi-ds,  the  attempt  to  organize  a  bank  in  a  large  city,  except  under 
the  conditions  above  mentioned,  or  in  a  new  section  where  banking 
facilities  are  lacking,  with  the  expectation  of  getting  deposits  by 
offering  xinusual  advantages  to  depositors  of  other  banks,  is  always 
hazardous,  resulting  disastrously  in  many  cases  during  the  last  twenty 
years. 

Some  banks  do  not  wish  to  take  small  accounts  because  the  expense 
of  taking  care  of  them— making  the  proper  entries  and  paying  checks, 
etc.,  does  not  yield  a  sufficient  profit.  The  Chemical  National  Bank, 
of  New  Y''ork.  for  example,  does  not  wish  to  keep  the  account  of  a 
depositor  whose  balance  does  not  average  $5,000.  There  are  other 
banks  in  that  city  having  a  .$."3,000  limit,  some  with  a  limit  of  .$1,000 
and  of  .$500.  The  writer  once  asked  the  president  of  one  of  the  largest 
banks  in  that  city  not  long  ago  whose  bank  had  a  $1,000  limit,  if  this 
was  observed  by  all  of  its  customers.  He  replied,  "By  no  means." 
"Well,  how  do  you  treat  the  depositors  who  keep  more  generally  below 
than  above  the  limit?"  He  replied,  "We  rarely  cut  one  off.  We  keep 
him  hoping  and  believing  that  his  business  will  grow  and  that,  after 
a  while,  his  balance  will  be  satisfactory  to  the  bank."  A  banker,  not- 
withstanding his  solemn  face,  is  one  of  the  most  hopeful  of  men;  he  is 
a  man  of  faith;  much  trusted  by  othei-s,  he  trusts  them  in  return. 
Bankei-s  do  a  great  deal  of  business  for  others  without  getting  any 
immediate  reward,  hoping  that  in  an  indirect  way  some  return  will  be 
received.  When  an  account  is  opened  with  a  man  he  is  rarely  cur  off 
unless  there  is  a  strong  reason  for  severing  the  relation.  If  his  balance 
is  invariably  small,  if  it  fluctuates  so  much  that  it  is  profitless,  and 


DEPOSITS  AND  DEPOSITORS.  67 

especially  if  he  is  guilty  of  lilting  checks  or  other  practices  whereby 
he  is  really  trying  to  live  on  the  bank  and  furnish  nothing,  he  will  be 
cut  off;  but  so  long  as  he  is  trying  to  do  liis  best  he  rarely  provokes 
such  action. 

Yet  there  are  depositors  who  will  present  checks  at  one  window 
and  immediately  draw  against  them  at  another;  their  bank  books  may 
shoAv  that  they  have  large  balances  in  the  bank,  when  in  fact  they  are 
constant  debtors.  AVhy  should  a  bank  keep  such  an  account  unless  it 
charges  interest  for  collecting  the  checks,  or  in  some  way  reaps  a 
profit  from  the  business.  Many  a  bank  has  accounts  of  this  kind.  If 
a  banker  is  asked  why.  he  will  reply  that  he  expects  his  customer 
will  do  better  and  that  eventually  be  will  keep  an  actual  balance  from 
which  some  profit  can  be  extracted.  And  this  leads  to  the  remark  that 
too  often  depositors  regard  a  bank  as  a  still  larger  number  do  the 
government  and  railroads,  as  insititutiims  from  which  it  is  all  right  to 
get  as  much  as  possible  without  any  return.  This  is  an  entirely  wrong 
attitude  for  a  depositor  to  assume  toward  a  bank.  He  should  regard 
the  relation  existing  between  him  and  his  bank  as  mutually  helpful, 
and  if  he  does  not,  the  sooner  the  relation  is  severed  the  better  for  the 
bank.  There  are  far  too  many  one-sided  depositors  who  see  only  their 
interest  in  establishing  the  relation.  A  depositor  who  is  not  willing 
to  make  some  return  for  having  his  checks  collected,  his  money  safely 
kept,  his  drafts,  his  due  bills,  his  certified  checks,  should  not  ask  a 
bank  to  do  these  things  for  him. 

One  of  the  ways  of  attracting  deposits  is  to  pay  interest  on  them. 
For  many  years  this  was  not  done  by  banks  of  discount  and  deposit  in 
this  country.  It  has  long  been  a  practice  of  banlcs  in  other  countries, 
but  not  in  the  United  States.  The  practice  of  paying  is  growing  and  the 
reasons  for  doing  so  may  be  briefly  stated. 

First,  because  the  trust  companies  pay  interest,  and  banks  must 
follow  suit  in  order  to  retain  them.  Sori^-Dtimes  a  depositor  keeps  two 
accounts,  one  with  a  trust  company  in  which  he  deposits  the  heavier 
and  more  valuable  portion,  receiving  interest  thereon,  while  the  smaller 
and  fluctuating  portion  is  put  in  a  bank  of  discount,  on  which  interest  is 
not  expected  or  paid.  Another  reason  for  paying  is  that  some  banks 
believe  that  the  profits  which  accrue  from  the  lending  of  their  cus- 
tomers' deposits  ought  to  be  divided  with  them.  This  is  the  view  held 
by  foreign  bankers,  and  who  accordingly  in  all  the  leading  European 
countries  do  pay  interest  on  the  balances  of  their  customers.  Another 
reason  for  paying  interest  on  deposits  is  because  they  are  paid  by  rival 
banks;  if  this  is  not  done  business  may  be  lost.  For  its  own  protection, 
therefore,  whether  willing  or  unwilling,  a  bank  is  often  obliged  to  pay  them. 

On  tlie  other  hand,  the  old-fashioned  reason  against  paying  interest 
on  deposits  is  that  banks  will  be  more  desirous  of  lending  them  in 
order  to  earn  the  money  that  must  be  paid  to  depositors,  and  to  prevent 


68  PRACTICAL   BANKING. 

tbe  loss  which  would  be  inevitable  if  interest  was  thus  paid  and  not 
earned.  The  danger  of  incurring  loss  from  paying  interest  is  so  great 
that  banks  are  led  into  maliing  loans  that  are  not  properly  secured;  and 
this  is  indeed  so  true  that  many  States  from  time  to  time  have  enacted 
laws  forbidding  banlvs  from  paying  interest  on  deposits.  Most  of  the 
States  liave  regulations  of  this  Ivind  applying  especially  to  the  deposits 
of  individuals. 

And  yet  it  must  be  added  that  banks  are  permitted  to  pay.  by 
statute  perhaps  in  all  the  States;  at  all  events  are  not  forbidden  from 
paying  interest  on  the  deposits  they  hold  belonging  to  other  banks.  A 
banlv  or  banker  is  unwilling  to  confide  any  portion  of  his  deposits  to 
another  unless  he  can  get  interest  on  them;  if  this  be  so  why  should 
not  the  same  rule  be  observed  by  individual  depositors;  and  further- 
more is  the  risk  any  gi'eater  in  lending  the  deposits  of  an  individual  by 
a  bank  tlian  the  deposits  received  from  another  bank?  Indeed,  the 
practice  between  banks  themselves  contradicts  their  own  notions  con- 
cerning the  non-payment  of  deposits  to  individuals.  There  is  no  more 
reason  for  forbidding  the  paj'ment  of  interest  on  the  one  class  of 
deposits  tl  an  on  the  otlier,  and  if  payment  of  them  is  permitted  to  one 
class,  the  permission  ought  to  extend  to  all. 

Another  reason  for  not  paying  them  applies  especially  to  the 
depositor,  tliat  he  is  lilcelj'  to  get  less  accommodation  from  his  banii  in 
the  way  of  loans  than  }ie  would  otherwise.  Until  within  a  few  years 
depositors  have  not  been  strenuous  in  demanding  interest  because  they 
have  been  large  borrowers  of  money,  and  well  knew  that,  if  they 
demanded  interest  on  their  deposits,  they  would  probably  be  accom 
modated  with  smaller  loans,  or  at  higher  rates  of  interest.  This  Is  the 
other  side  of  the  question,  and  we  presume  that  in  many  cases  depos- 
itors still  believe  the  prudent  course  is  for  them  to  let  their  banks  have 
the  use  of  their  deposits  Avithout  demanding  interest,  expecting  to 
receive  larger  accommodations  than  would  otherwise  be  granted  to 
them.  It  is  an  important  question  with  every  depositor,  whether  if 
he  demanded  and  received  interest  on  his  deposit,  he  would  gain  any- 
thing. Evidently  the  question  must  be  answered  by  every  depositor 
for  himself.  Banks  are  not  philanthropic  institutions,  but  are  organized 
for  the  purpose  of  making  money,  and  if  their  customers  seek  to  get 
all  they  possibly  can  out  of  them  in  the  way  of  keeping  small  l)alances, 
or  of  exacting  too  much  interest,  banks  must  square  the  account  by 
demanding  higher  rates  of  interest  and  making  smaller  loans  at  times 
when  they  are  most  needed.  Depositors  who  keep  the  largest  regular 
accounts  are  the  most  highly  favored;  they  can  borrow  the  most  monej' 
and  at  tlie  lowest  rates;  and  during  times  of  panic  and  depression  are 
the  most  likelj"  to  be  accommodated.  Many  a  bank  has  borrowed 
money  during  a  time  of  panic  and  lent  the  same  at  a  lower  rate  to  its 
own  customers,  because  they  had  kept  large  balances  that  had  been 
very  profitabk;.    Banks  well  understand  the  nature  of  the  accounts  oT 


DEPOSITS    AND    DEPOSITORS.  69 

their  customers  ami  of  their  needs  hi  busiuess.  and  seek  to  treat  them 
fairly  in  most  eases.  For  the  aeeounts  that  are  worth  the  most  to  a  bank 
It  will  make  the  best  returns  in  soiuf  way.  if  not  in  paying  inte''est. 
And  this  is  just  as  well  known  bj'  their  customers.  Therefore,  we 
repeat,  the  question  is  by  no  means  settled  whether  interest  should  be 
generaly  paid  on  deposits  here  as  in  other  countries. 

The  practice  of  paying  interest,  however,  is  growing,  and  it  may 
become  general,  but  the  end  is  not  yet.  Another  fact  giving  impetus 
to  the  practice  is  the  rapid  accumulation  of  wealth  by  business  men, 
rendering  them  less  dependent  on  banks  than  they  were  in  the  earlier 
days.  Now  they  need  less,  can  borrow  elsewhere  and  at  better  rates, 
and  their  growing  independence  of  banks  leads  them  to  ask  less  in 
return. 

The  payment  of  interest  on  public  deposits  rests  on  a  somewhat 
different  principle.  First,  the  use  of  these  deposits  is  well  known  as  the 
laws  and  practice  define  the  days  when  the  State,  city  or  other  munici- 
pality must  pay  many  of  its  obligations.  Large  portions  of  public 
deposits  are  therefore  inactive,  and  banks  can  well  afford  to  pay  for  the 
use  of  them,  and  the  public  may  very  justly  expect  that  banks  should 
do  this.  Moreover,  loans  are  rarely  made  of  banking  institutions.  As 
public  deposits  therefore  are  of  a  different  nature,  the  public  neither 
asking  nor  expecting  loans  or  other  favors,  it  is  just  that  the  public 
should  exact  its  share  of  the  profits  made  in  lending  them.  We  would 
not  suggest  that  the  State  or  other  public  bodies  should  lend  their 
deposits,  for  this  plan  would  probably  result  in  favoritism  and  untold 
mischief.  The  public  should  insist  on  proper  security  for  them,  and 
when  this  has  been  furnished,  to  confide  them  to  the  banks  for  safe- 
keeping and  such  remuneration  as  under  the  circumstances  they  are 
justified  in  paying. 

There  is  another  class  of  deposits  received  by  banks  of  discount  for 
which  certificates  of  deposit  are  given.  On  such  a  deposit  interest  is 
usually  paid.  No  account  is  opened  with  the  depositor  and  the  cer- 
tificate may  run  for  an  indefinite  time,  or  two  months,  six  months,  or 
even  longer  period.  If  the  certificate  be  for  no  fixed  period,  ihe 
statute  of  limitation  does  not  begin  to  run  against  the  deposit  until 
after  a  demand  has  been  made  for  the  money.  In  other  words,  when 
a  deposit  is  thus  made,  the  bank  is  liable  for  the  amount  no  matter  how 
long  may  be  the  period  before  the  owner  or  his  representative  calls  for 
it.  In  some  States,  however,  a  different  rule  exists.  If  the  owner  does 
not  call  for  his  deposit  within  six  years  or  other  period  specified  by 
the  statute  of  limitation,  he  is  not  entitled  to  his  deposit.  It  sometimes 
happens  that  such  a  deposit  is  made  and  never  demanded.  There  are 
thousands  of  unclaimed  deposits  in  the  old  savings  banks  in  the  larger 
cities.  Sometimes  a  bank  having  a  deposit  that  has  run  for  a  long  time 
is  willing  to  pay  it  over  to  a  claimant,  though  his  title  may  not  be 
perfect,  first  giving  a  bond  of  indemnity  for  the  amount;  but  it  must  be 


70 


PRACTICAL  BANKING. 


remembered  that  a  bank  is  liable  on  its  certificate  until  the  statute  of 
limitation  affords  protection,  or  payment  has  been  made.  The  form 
of  certificate  given  in  the  note  below  is  in  general  use. 


.>a369_ 


r^^^1^S4Z^^>^^g^^^ 


In  effect,  a  certificate  of  deposit  is  a  checli  by  a  bank  on  itself.  In 
issuing  a  certificate  payable  to  a  stranger  it  is  well  to  have  him  write 
his  signature  on  the  margin  of  the  certificate,  so  that  when  it  comes 
back  for  redemption,  the  indorsement,  if  it  has  been  transferred,  can  be 
compared  with  the  depositor's  signature,  and  its  genuineness  be 
assured.  Again,  every  certificate  when  returned  should  be  examined 
and  compared  with  the  original  entry.  By  doing  this  the  bank  will 
escape  the  danger  of  paying  a  raised  certificate.  Of  course,  a  bank 
should  have  either  a  ledger  or  some  other  book  containing  a  record  of 
the  amounts  and  names  of  all  its  certificates  of  deposit  issued,  together 
with  the  dates  and  numbers. 

In  opening  an  account  with  a  bank,  the  depositor's  signature  is  requested 
and  kept  in  a  book  or  upon  a  card,  termed  a  signature  card,  prepared  for  that 
purpose.  The  object  of  this  is  to  have  it  for  comparison  with  the  signature 
on  his  checks  or  other  obligations  presented  for  payment.  It  may  be  asked, 
Is  a  paying  teller  familiar  with  the  signature  of  every  customer  of  the 
bank?  He  is  with  many  of  them.  At  all  events,  this  practice  was  long 
ago  adopted,  and  no  bank  would  think  of  throwing  it  aside.  As  a  bank 
is  responsible  for  all  payments  made  for  the  benefit  of  its  depositors, 
their  checks,  notes,  or  other  obligations,  it  must  assure  itself  always 
that  the  signature  in  every  case  is  genuine.  If  it  is  not,  though  a 
bank  may  have  exercised  the  utmost  caution  in  paying  them,  it  must 
incur  the  loss;  it  cannot  throw  the  loss  off  on  its  depositors.  This  often 
works  great  hardship,  for  again  and  again  depositors,  who  have  failed 
to  detect  the  forgery  of  their  signatures,  have  held  their  bank  respon- 
sible for  not  having  keener  eyes  than  they  themselves  possessed.  On 
this  topic  more  will  be  said  hereafter. 

Besides  the  classification  above  given  those  who  keep  accounts  with 
banks   may  be  also   classified   as   regular  or   irregular   depositors.    A 


PEPOSITS   AND   DEPOSITORS.  71 

regular  depositor  is  one  who  keeps,  or  aims  to  keep  a  steady  balance 
of  a  certain  amount.  This  is  the  most  valual)le  kind  of  deposit  for  a 
bank  to  have  because  it  can  then  determine  what  portion  can  be 
safelj'  used.  It  is  only  by  such  a  calculation  that  a  bank  is  able  to 
determine  what  it  can  do  in  lending  deposits. 

Irregular  depositors  are  marked  in  various  ways.  First,  is  the 
man  who  deposits,  it  may  be  a  large  sum  to-day,  and  draws  it  all  out 
to-morrow  or  the  day  after,  followed  it  may  be  by  another  large 
deposit  soon  afterward.  Such  a  depositor  is  not  worth  much  to  a  bank 
because  it  can  make  no  use  of  his  money.  Then  there  is  the  depositor 
who  is  all  the  time  trying  to  get  more  from  the  bank  than  he  gives 
in  return.  The  depositor  who  is  kiting  checks,  or  who  deposits  them 
and  draws  against  them  before  their  collection,  are  worthless  to  a 
bank;  and  they  would  not  be  encouraged,  as  they  often  ai'e,  by  keeping 
their  names  on  the  roll  if  banks  were  not  deluded  Avith  the  hope  that 
they  would  mend  their  ways  and  sooner  or  later  keep  profitable 
balances.  Alas!  how  long  has  many  a  bank  vainly  waited  for  the 
reformation. 

An  example  may  be  given.  A  man  died  not  so  very  long  ago  in 
Warren,  Penu.,  who  was  generally  supposed  to  be  worth  .$1.50,000.00, 
but  who,  in  truth,  was  not  worth  a  dollar.  His  reputation  with  the 
Citizens'  National  Bank,  of  that  place,  was  excellent.  He  always 
protected  every  obligation,  and  could  therefore  get  assistance  when- 
ever he  wanted  it,  although  the  bank  knew  of  his  unique  method  of 
kiting  checks  and  drafts.  He  had  a  system  of  "check  kiting"  that 
would  put  to  shame  the  "Napoleon  of  finance"  of  New  York.  At  one 
time  he  had  a  brother  in  Pittsburg  handling  oil  for  him,  and  he  also  had 
business  relations  with  houses  in  Chicago  and  Philadelphia.  If  badly 
in  need  of  ready  monej^  he  would  draw  on  his  brother  in  Pittsburg 
at  one  day's  sight,  deposit  the  draft  in  the  bank  at  Warren  and  be 
given  the  immediate  use  of  the  money.  His  brother  w^ould  accept  the 
draft  in  Pittsburg,  and  when  it  fell  due  would  pay  it  with  a  draft  on 
the  agency  in  Chicago.  The  Chicago  house  would  pay  with  a  draft  on 
the  Philadelphia  concern.  The  Philadelphia  house  would  pay  with  a 
draft  on  the  brother  who  lived  at  Warren.  In  that  way  he  would  gain 
sixteen  days'  time,  and  pay  no  discount. 

On  the  steadiness  of  the  deposits  of  a  bank  everything  depends  for 
its  profitable  operation.  The  deposits  of  a  bank  that  are  constantly 
shifting,  like  the  sands  of  the  sea,  are  very  troublesome,  and  on  them 
can  be  founded  no  sure  calculations.  What  can  a  bank  do  with  depos- 
its that  may  be  demanded  any  moment,  whose  owners  have  no  regard 
for  the  interests  or  convenience  of  tlie  bank,  but  are  simply  thinking  of 
themselves?  In  truth,  a  bank  receiving  a  large  amount  of  such  varying 
deposits  that  cannot  be  used,  or  only  a  very  small  portion  of  them, 
makes  less  than  another  bank  Avith  much  smaller  deposits  of  an  essen- 
tially fixed  character,  the  larger  portion  of  which  can  be  safely  loaned. 


72  PRACTICAL   BANKING. 

Au  important  thing,  tlierefore,  for  a  banli  is  kindly  to  insist,  so  far 
as  it  can,  witli  every  depositor  that  lie  must  keep  a  fixed  amount  with 
the  bank;  or  if  at  times  needing  his  entire  deposit  to  make  unusual  pay- 
ments, that  he  will  seek,  so  far  as  he  can,  to  notify  the  bank  and 
thus  enable  it  to  make  calculations  and  consequently  save  it  from 
embarrassment.  If  banks  were  more  strenuous  in  these  requirements, 
they  would  make  more  money  and  be  relieved  of  much  anxiety.  In 
other  words,  depositors  should  be  taught  that  the  i-elationship  is 
mutual,  that  they  ought  not  to  regard  it  as  one-sided,  and  seek  to  make 
everything,  not  caring  for  the  interests  of  the  bank,  while  it,  on  the 
other  hand,  should  be  moved  by  the  desire  of  rendering  a  valuable 
service  to  its  depositors.  This  it  can  do,  and  this  is  usually  done  by 
banks,  but  the  nature  of  the  service  and  of  the  obligation  between  the 
two  ought  to  be  more  fully  emphasized. 

Another  class  of  depositors  to  be  mentioned  are  women.  In  some 
of  the  large  cities  within  a  few  years  banks  have  been  established  in 
the  residential  portions  expec!;ing  to  draw  their  deposits  chiefly  from 
women.  There  are  several  banks  of  this  character  in  our  large  cities 
that  have  been  exceedingly  profitable.  Usually  women  depositors  do 
not  borrow  money,  but  occasionally  overdraw  their  accounts.  An 
amusing  story  is  told  of  a  depositor  who  had  overdrawn  her  account. 
The  cashier  notified  her  of  the  fact  in  a  most  courteous  manner,  and 
she  replied  very  sharply,  sending  him  a  check  on  the  bank  for  the 
.amount  of  the  overdraft  and  saying  to  him  that  she  had  plenty  of 
money  there  and  did  not  wish  in  the  lUture  lo  receive  any  more  notes 
of  that  kind. 

The  ordinary  relation  between  a  bank  and  its  depositor,  as  we  have 
remarked,  is  that  of  a  debtor  and  creditor.  But  between  them  another  re- 
lation may  be  established.  If  A,  who  has  not  au  account  at  a  bank,  takes 
a  check  there  to  be  collected  expecting  to  pay  something  for  the  service, 
which  is  duly  performed,  the  bank  is  the  agent  of  the  owner  of  the 
check  and  the  money  collected  belongs  to  him;  and  should  the  bank  fail 
he  would  have  a  preference  over  ordinary  depositors.  This  principle 
has  long  been  established,  and  is  constantly  applied.  Whenever  this 
agency  or  trust  relation  exists,  the  depositor  or  customer  is  the  owner 
of  the  obligation  intrusted  to  the  bank,  and  likewise  the  owner  of  the 
receipts  taken  by  it  in  the  course  of  its  collection. 

It  often  happens,  however,  that  both  relations  may  be  established 
between  a  bank  and  a  customer,  at  successive  periods  during  a  trans- 
action. For  example,  suppose  a  regular  depositor  leaves  checks  Avlth  a 
bank  for  collection,  which  are  indorsed  in  such  a  manner  as  to  retain 
his  ownership  of  them;  should  the  bank  fail  before  their  collection, 
he  could  recover  them  because  he  is  the  owner.  Suppose  these  checks 
are  collected  and  the  money  is  mingled  with  his  general  account  as 
a  depositor?  The  trust  or  agency  relation  created  in  the  beginning  is 
then  changed  into  the  ordinary  relation  of  debtor  and   creditor,   and 


DEPOSITS   AND   DEPOSITORS.  73 

should  the  bank  fail  aftor  making  the  collection,  the  depositor  would 
fare  like  other  creditors. 

An  interesting^  illustration  may  be  given  in  which  this  principle 
was  applied.  During  the  civil  war  the  Marine  Bank  of  Chicago 
addressed  a  circular  to  its  correspondents,  informing  them  that,  in 
consequence  of  the  derangement  then  existing  in  the  currency  of 
Illinois,  it  would  be  compelled  to  place  all  funds  received  in  payment 
of  collections  to  their  credit  in  such  currency  as  was  received  in  that 
city — bills  of  the  Illinois  stock  banks— to  be  drawn  only  in  similar 
bills.  The  Fulton  Bank,  for  which  a  collection  was  made,  received  the 
notice.  At  the  time  of  making  it  the  bills  were  from  five  to  ten  per 
cent,  below  par.  but,  when  the  Fulton  Bank  demanded  payment  of  the 
collection,  a  year  afterward,  the  bills  had  declined  fifty  per  cent,  in 
value.  It  insisted  that  it  was  entitled  to  the  value  of  the  bills  at 
the  time  when  they  were  received  by  the  Chicago  bank,  while  the 
bank  claimed  it  Avas  not  obliged  to  pay  only  their  value  in  coin  at  tne 
time  payment  was  demanded,  with  interest.  Mr.  Justice  Miller,  who 
delivered  the  opinion  of  the  court,  said  that,  "If  the  Marine  Bank  had 
received  the  depreciated  money,  and  kept  it  without  using  it  until 
called  for,  or  had  sent  it  by  express  to  the  plaintiff  it  would  then  have 
been  relieved  from  further  liability.  In  other  words,  so  long  as  the 
defendant  retained  strictly  the  character  of  agent,  and  acted 
Avithin  the  principle  laid  down  in  the  circular,  it  was  protected."  But 
instead  of  doing  this  the  Marine  Bank  changed  the  relation  of  prin- 
cipal and  agent  into  the  ordinary  one  of  debtor  and  creditor  by  using 
the  money  as  a  general  deposit.  Hence  the  bank  was  declared  liable 
for  the  depreciation  in  the  bank  bills  received  during  the  period  it  kept 
the  deposit.* 

This  principle  is  of  the  highest  importance  in  dealing  with  deposits, 
and  banks  are  constantly  seeking  to  apply  it  in  such  a  way  as  to 
retain  the  ownership  of  their  notes  and  checks  sent  out  for  collection 
and  their  proceeds  as  far  as  possible.  The  cases  are  constantly  arising 
especially  when  l)anks  fail,  which  of  the  two  relations  existed  between 
the  failed  bank  and  the  other,  the  agency  or  trust  relation,  or  that  of 
debtor  and  creditor.  When  the  Fidelity  National  Bank,  of  Cincinnati, 
failed  a  few  years  since,  a  large  crop  of  questions  arose  out  of  the 
arrangements  which  that  bank  had  with  other  banks  for  collecting 
their  checks.  A'arious  interpretations  were  put  on  these  contracts,  and 
a  reference  to  some  of  the  cases  in  which  they  were  considered  may  be 
desirable,  for  the  principles  set  forth,  and  also  for  the  contracts  them- 
selves. T 


*2  Wallace  252. 

fFirst  Nat.  Bank  v.  Armstrong,  39  Fed.  Rep.  231 ;  Commercial  Nat. 
Bank  v.  Armstrong,  39  Fed.  Rep.  684;  Fifth  Nat.  Bank  v.  Armstrong,  40 
Fed.  Rep.  47. 


74  PRACTICAL  BANKING. 

Thus  much  concerning  the  nature  of  the  contract  between  banks 
and  their  depositors.  It  need  hardly  be  mentioned  that  a  bauli  ought 
not  to  receive  deposits  when  it  is  in  an  insolvent  condition.  In  many 
cases  this  is  clearly  a  fraud,  and  the  officers  who  talie  the  deposits  may 
be  punished.  Within  a  few  years  many  of  the  States  have  passed 
statutes  making  their  receipt  at  such  times  a  penal  offense;  at  common 
law,  too,  such  conduct  is  clearly  a  fraud,  and  the  deposits  may  be 
recovered.  They  do  not  go  into  the  general  mass  and  become  subject 
to  the  same  burdens  as  other  assets.  The  statutes,  however,  are 
more  specific  and  increase  the  offense.  Missouri  was  perhaps  the  first 
State  to  enact  such  a  statute. 

The  true  owner's  name  should  appear  to  every  deposit.  Tliis  is 
obvious  without  further  remark.  Yet  in  savings  banks  especially 
deposits  are  constantly  made  in  the  name  of  some  other  person  as 
trustee,  although  this  is  a  pure  fiction. 

It  happens  every  now  and  then  that  a  person  is  sued  and  his  deposit 
in  a  bank  is  attached  in  order  to  secure  the  debt  of  the  suing  creditor. 
T^'hen  this  is  done  of  course  a  bank  should  not  pay  it  over,  but  hold 
the  amount  attached  sul>ject  to  the  order  of  the  coux't.  Sometimes 
there  are  several  claimants;  the  bank  should  then  hold  it  until  they 
have  determined,  by  proper  legal  proceedings,  unless  reaching  an 
amicable  settlement,  to  whom  it  shall  be  paid. 

Every  well-conducted  bank  has  a  book  in  which  everything  of 
importance  pertaining  to  the  credit,  ability  and  character  of  their  cus- 
tomers is  noted.  Papers  are  diligently  read  and  reports  scanned, 
inqiiiries  are  made  of  persons  who  are  supposed  to  know  about  others; 
all  kinds  of  business  are  investigated  with  care;  occasionallj'  a  consid- 
erable sum  is  paid  to  an  individual  for  malving  a  special  investigation 
into  the  affairs  of  a  customer.  Very  often  these  investigations  and 
inquiries  must  be  made  with  great  tact  and  secrecy.  If  a  customer 
were  to  find  out  that  he  were  under  a  telescopic  investigation,  lie 
might  be  offended,  withdraw  his  account,  and  vengefully  exert  himself 
to  injure  the  bank.  On  the  other  hand,  no  faithful  bank  manager 
should  be  negligent  of  his  duties  in  this  regard.  No  opportunity  tor 
inquiry  should  be  neglected.  The  most  successful  bank  managers  are 
those  who  are  most  diligent  in  conducting  these  investigations,  and  in 
watching  all  the  complicated  movements  of  trade. 

Every  bank  should  know  as  much  as  possible  concerning  each  of 
its  customers,  and  the  information  obtained  should  be  carefully  re- 
corded and  preserved.  In  a  large  business  it  would  be  impossible  for 
any  officer  to  remember  the  different  terms  and  agreements  and 
understandings  fixed  with  its  various  customers  from  time  to  time,  and 
therefore  it  is  the  practice  of  a  systematic  officer  to  write  or  dictate 
to  his  stenographer,  immediately  after  an  important  interview  with  a 
dealer,  the  substance  of  what  has  been  said.  Some  banks  have  found 
that  the  most  advantageous  way  is  to  have  a  very  large  scrap-book 


DEPOSITS  AND  DEPOSITORS.  75 

prepared,  in  which  all  records  of  conversations,  statements  of  condition, 
agency  reports,  etc.,  etc.,  are  pasted.  The  boolc  should  be  made  with 
numliered  leaves,  and  with  short  stubs  to  which  papers  can  be  pasted, 
and  with  still  shorter  stub  leaves  to  fill  up  the  book,  so  that  when  it  is 
full  the  back  will  not  be  broken.  A  voweled  index  separately  bound 
should  accompany  such  a  scrap-book.  Between  each  numbered  leaf 
there  should  be  room  for,  say,  three  of  the  shorter  stub  leaves  on  which 
papers  could  be  pasted.  These  shorter  leaves  would  be  numbered  1, 
2.  3,  and  the  entry  on  the  index  would  therefore  be,  say.  as  follows: 
.Tohn  Smith  &  Co.,  Book  Xo.  1.  page  (say)  2-185,  which  would  mean  that 
on  section  2  of  page  185,  in  scrap-book  No.  1,  there  could  be  foruid  a 
record  of  all  that  was  known  concerning  John  Smith  &  Co.  A  succeed- 
ing administration  would  therefore  be  able  to  know  just  about  as  much 
concerning  John  Smith  &  Co.  as  the  officer  who  directed  the  entry.  Of 
course,  such  systems  as  tl\e  foregoing  require  systematic  and  regular 
attention,  which  usually  cannot  be  given  by  either  the  cashier  or  presi- 
dent, and  therefore  a  clerk  must  be  employed  for  the  purpose.  In  some 
large  banks  a  young  man  is  employed  as  a  "credit  clerk,"  whose  almost 
exclusiye  duty  is  to  go  about  in  the  various  trades  for  the  special 
information  required,  and  record  what  is  learned  in  the  above-described 
Bought  Paper  Book  and  Dealers'  Scrap-Book. 


76  PRACTICAL   BANKING. 


CHAPTER  VIII. 
DIRECTORS  AND   LOANS. 

SECTION  I. 

THE  SELECTION  AND  GENERAL  SUPERVISION  OF  DIRECTORS. 

In  organizing  a  bank  the  first  question  is  the  number  of  members. 
Five  is  the  minimum  number  prescribed  by  the  national  banliing  law, 
and  some  banks  have  no  more;  others  have  a  larger  directory,  repre- 
senting, if  possible,  the  leading  trades  in  the  place  of  its  location.  The 
reason  for  creating  a  representative  board  is  obvious.  The  representa- 
tive of  a  particular  trade  is  supposed  to  be  familiar  with  the  condition 
of  the  persons  thus  engaged,  their  wealth  and  modes  of  business.  If 
a  bank  Avas  located  in  a  city  where  the  tobacco  interest  was  prominent, 
it  would  probably  have  a  director,  if  he  could  be  obtained,  familiar 
with  tliat  business,  and  able  to  judge  of  the  worth  of  the  tobacco  paper 
presented  for  discount.  If  a  bank  was  located  in  a  city  largely 
engaged  in  the  iron  industry,  one  or  more  of  the  directors  would 
probal>ly  be  engaged  in  that  business. 

It  need  not  be  remarked  that  great  care  should  be  used  in  selecting 
directors.  Sometimes  the  chief  motive  in  making  a  selection  is  the 
belief  that  he  will  attract  business,  not  expecting  that  he  will  ever, 
or  only  on  rare  occasions,  attend  l)oard  meetings.  A  bank  in  New 
York  city  has  in  its  directory  a  prominent  railway  official  who  lives  in 
the  Northwest.  It  was  not  expected,  at  the  time  of  electing  him, 
that  he  would  come  to  New  York  twice  a  week  to  attend  board  meet- 
ings, yet  he  has  been  a  valuable  director,  influencing  banks  and  other 
depositors  in  his  section  of  the  country  to  keep  their  New  York  account 
with  his  bank.  Every  person  chosen  a  director  is  supposed  to  be  of 
some  worth  to  the  institution,  either  because  of  his  knowledge  of  the 
persons  who  are  likely  to  present  paper  for  discount,  or  because  of 
his  general  business  capacity,  or  fine  repute. 

It  is  important  for  a  bank  to  know  what  are  the  motives,  so  far 
as  they  can  be  ascertained,  of  those  who  serve  as  members  of  its 
directory.  In  choosing  them  the  bank  has  a  clear  object  in  view,  to 
strengthen  itself,  to  attract  customers,  and  to  have  the  benefit  of  their 
experience;  but  the  directors  themselves  may  liave  very  different 
motives.    They  may  be  purely  selfish,  willing  to  serve  in  order  to  get 


DIRECTORS   AND   LOANS.  77 

loans  and  other  accommodations.  If  a  person  serves  simply  with  the 
view  of  helping  himself,  and  not  of  aiding  the  bank,  he  should  be  dropped 
on  the  discovery  of  the  mistake.  It  follows  that  a  man  who  organizes 
a  bank  with  the  view  of  collecting  funds  to  be  diverted  to  his  own 
use  perverts  the  objects  of  the  association,  fools  those  who  are  enr^aged 
with  him,  and  too  often  ruins  his  bank.  We  have  recently  read  of  tbe 
failure  of  a  bank  in  Michigan  owing  its  depositors  .$225,000.  Of  this 
amount  the  president  had  borrowed  $190,000  and  used  it  in  his  own 
business.  Having  failed  in  this,  the  bank  was  compelled  to  suspend; 
indeed,  was  totally  Avrecked. 

Again  and  again  have  banks  failed  because  they  were  officered  Dy 
one  or  two  men,  or  a  ring,  who  had  not  the  good  of  their  depositors  in 
mind  so  much  as  their  own  special  profit.  Banks  organized  for  a 
personal  purpose  should,  witliout  exception,  be  let  alone  whenever  this 
purpose  Is  known.  The  national  banking  law  prescribes  that  no 
director  shall  borrow  more  than  ten  per  cent,  of  its  capital,  but  this 
provision  has  often  been  violated  through  the  negligence  or  connivance 
of  the  directory.  One  man,  the  president  it  may  be,  or  a  small  body  of 
men,  organize  a  bank,  or  obtain  control,  and  disregarding  this  provision 
of  the  law,  run  it  for  their  own  ends.  Tliis  Is  not  only  a  perversion  of 
the  law,  but  a  wrong  to  depositors,  for  one  of  the  objects  often  in 
depositing  Is  to  obtain  accommodations,  and  these  cannot  be  granted 
when  all  the  money  is  lent  to  a  few. 

Some  directors  attend  meetings  with  regularity,  and  take  a  deep 
interest  in  the  affairs  of  their  l)ank.  They  seek  to  enlarge  its  sphere 
and  to  Increase  its  gains.  There  are  other  directors  whose  presence 
is  a  surprise.  A  third  class  appear  Irregularly,  and  sometimes  are 
troublesome  in  their  endeavor  to  learn  concerning  all  the  business  done 
at  the  meetings  when  they  were  not  present.  They  are  usually  retained 
in  spite  of  their  ways  for  one  reason  or  another.  If  they  attended 
regularly  most  of  their  questions  would  be  unnecessary.  Time  would 
be  saved,  and  the  temper  of  their  associates  would  not  be  tried.  In  a 
large  board  of  twelve  or  fifteen  directors  it  is  hardly  possible  to  have 
unanimity  on  all  occasions,  and  yet  each  director  may  fill  his  valuable 
niche  in  the  institution.  Each  one,  whether  pleasant  or  disagreeable, 
Avhether  regular  in  his  attendance  or  otherwise,  may  through  his 
wealth,  or  business  relations,  or  knowledge,  serve  a  useful  purpose. 

It  may  be  added  that  a  director  cannot  vote  a  compensation  to  him- 
self for  any  service  he  may  have  rendered,  whatever  may  be  its  value. 
In  one  of  the  most  recent  cases  the  court  remarked:  "Directors  have 
not  the  authority  to  vote  salaries  to  themselves  after  their  election  as 
directors,  nor  can  they  in  any  instance  vote  a  salary  to  one  of  their 
number  as  president  when  he  takes  part  in  the  proceeding,  or  his  vote 
is  essential  to  the  adoption  of  the  resolution."* 


*Wlckersham  v.  Crittenden,  Cal.  Sup.  ("t.,  28  Pacific  Reporter  791. 


78  PRACTICAL  BANKING. 

Having  considered  the  composition  of  a  banli  directory,  we  may 
next  consider  what  dutj'  is  undertaken  by  a  director  when  assuming 
that  relation.  This  question  has  often  been  asked  and  answered.  The 
Supreme  Court  of  the  United  States,  however,  did  not  answer  the  ques- 
tion for  national  bank  directors  until  1890,  on  the  trial  of  the  case  of 
Briggs  V.  Spaulding.  The  members  of  the  Supreme  Court  were  almost 
equally  divided,  five  to  four,  concerning  the  rule  of  liability  that  should 
be  applied  to  directors  of  these  institutions.  The  principal  utterance 
of  the  majority  of  the  court  was  as  follows:  "It  is  perhaps  unnecessary 
to  attempt  to  define  with  precision  the  degree  of  care  and  prudence 
which  directors  must  exercise  in  the  performance  of  their  duties.  The 
degree  of  care  required  depends  upon  the  subject  to  which  it  is  to  be 
applied,  and  each  case  has  to  b,!  determined  in  view  of  all  the  circum- 
stances. They  are  not  insurers  of  the  fidelity  of  the  agent  whom  they 
have  appointed,  who  are  not  their  agents,  but  the  agents  of  the  cor- 
poration; and  they  cannot  be  held  responsible  for  losses  resulting  from 
the  wrongful  acts  or  omissions  of  other  directors  or  agents  unless  the 
loss  is  a  consequence  of  their  own  neglect  of  duty,  either  for  failure 
to  supervise  the  business  with  attention,  or  in  neglecting  to  use  proper 
care  in  the  appointment  of  agents."* 

But  the  minority  would  have  adopted  a  serever  rule.  Judge  Harlan, 
the  spokesman  for  the  minority,  declared:  "We  are  of  opinion  ihat 
when  the  act  of  Congress  declared  that  the  affairs  of  a  national  banking 
association  shall  be  'managed'  by  its  directors,  and  that  the  directors 
should  take  an  oath  to  'diligently  and  honestly  administer'  them,  it  was 
not  intended  that  they  should  abdicate  their  functions  and  leave  its 
management  and  the  administration  of  its  affairs  entirely  to  executive 
officers.  True,  the  bank  may  act  by  'duly  authorized  officers  or  agents,' 
in  respect  to  matters  of  current  business  and  detail  that  may  be 
properly  intrusted  to  them  by  the  directors.  But,  certainly.  Congress 
never  contemplated  that  the  duty  of  directors  to  manage  and  to 
administer  the  affairs  of  a  national  bank  should  be  in  abeyance 
altogether  during  any  period  that  particular  oflicers  and  agents  of  tlie 
association  are  authorized  or  permitted  by  the  directors  to  have  full 
control  of  its  affairs.  If  the  directors  of  a  national  bank  chose  to 
invest  its  officers  or  agents  with  such  control,  what  the  latter  do  may 
bind  the  bank  as  between  it  and  those  dealing  with  such  officers  and 
agents.  But  the  duty  remains,  as  between  the  directors  and  those  who 
are  interested  in  the  bank,  to  exercise  proper  diligence  and  supervision 
in  respect  to  what  may  be  done  by  its  officers  and  agents. 

"As  to  the  degree  of  diligence  and  the  extent  of  supervision  to  be 
exercised  by  directors,  there  can  be  no  room  for  doubt  under  (he 
authorities.  It  is  such  diligence  and  supervision  as  the  situation  and 
the  nature  of  the  business  requires.    Their  duty  is  to  watch  over  and 


*141  U.  S.  Rep.  147. 


DIRECTORS   AND   LOAXS.  T9 

guard  till"  interests  oomniitted  to  them.  In  fidelity  to  tlieir  oaths,  and 
to  the  obligations  they  assume,  they  must  do  all  that  reasonably 
prudent  and  careful  men  ought  to  do  for  the  protection  of  the  interests 
of  others  intrusted  to  their  charge."* 

Tlie  court  was  so  nearly  divided  that  the  question  can  hardly  be 
regarded  as  definitely  answered.  The  general  opinion  is  that  bank 
directors  should  observe  a  stricter  supervision  than  was  prescribed  by 
the  majority  of  the  court. 

The  opinion  expressed  by  Judge  Severens  in  the  note  below  is  worth 
giving,  because  we  think  it  clearly  embodies  the  intention  of  Congress,  f 


*rage  169. 

fin  a  i'ecent  case  Judge  Severens,  sitting  as  a  judge  in  the  U.  S. 
Circuit  Court  for  the  Western  District  of  Michigan,  thus  defined  the 
duties  of  a  national  bank  director: 

"In  my  opinion,  it  does  not  meet  the  requirements  of  the  law  that 
directors  may  conlide  the  management  of  the  operations  of  the  bank  to 
a  trusted  otticer,  and  tlien  repose  upon  their  confidence  in  his  right  con- 
duct witliout  making  I'xaminations  themselves,  or  relying  upon  his 
answers  to  general  questions  put  to  him  with  regard  to  the  status  of  the 
affairs  of  the  hank.  To  begin  with,  it  is  to  lie  assumed  in  every  case  that 
the  directors  have  not  selected  any  other  than  a  man  of  good  reputation 
for  capacity  and  iutegrity.  Any  other  idea  assumes  that  they  have  been 
guilty  at  the  outset  of  a  glaring  fault.  Further,  it  is  a  well-known 
fact  that  a  large  proportion  of  the  disasters  which  befall  banking  insti- 
tutions come  from  the  malfeasance  of  just  such  men,  and  it  would  be 
manifest  to  everybody  that  only  a  satisfactory  and  quieting  reply  would 
be  made  by  the  official  who  has  any  reason  for  concealment.  Again, 
what  are  the  duties  of  management  that  are  committed  to  the  cashier, 
or  the  oflicer  standing  in  his  placeV  They  are  those  which  relate  to  the 
details  of  the  busin(>ss,  to  the  conduct  of  particular  transactions.  Even 
in  respect  of  those,  his  duties  are  conjoint  with  those  of  the  board  of  di- 
rectors. In  large  affairs  it  is  his  duty  to  confer  with  the  board.  In 
questions  of  doubt  and  ditticulty,  and  where  there  is  time  for  consul- 
tation, it  is  his  duty  to  seek  their  advice  and  direction.  It  is  his  duty 
to  loolc  after  the  details  of  the  office  business,  and  generally  to  con- 
duct its  ordinary  operations.  It  is  the  riglit  and  duty  of  the  board  to 
maintain  a  supervision  of  the  affairs  of  the  bank;  to  have  a  general 
knowledge  of  the  manner  in  which  its  business  is  conducted,  and  of  the 
character  of  that  business;  and  to  have  at  least  such  a  degree  of  inti- 
macy with  its  affairs  as  to  know  to  whom,  and  upon  what  security,  its 
laige  lines  of  credit  are  given;  and  generally  to  know  of,  and  give  direc- 
tion vith  regard  to,  the  important  and  general  affairs  of  the  bank,  of 
Avhich  the  cashier  executes  the  details.  They  are  not  expected  to  watch 
the  routine  of  every  day's  business,  or  observe  the  particular  state  of 
tlie  accounts,  unless  there  is  special  reason;  nor  are  they  to  be  held 
responsible  for  any  sudden  and  unforeseen  dereliction  of  executive 
oflicers,  or  other  accidents  which  there  was  no  reason  to  apprehend. 
The  duties  of  the  board  and  of  the  cashier  are  correlative.  One  side 
are  those  of  an  executive  nature,  which  relate  mainly  to  the  details. 
On  the  other  are  those  of  an  administrative  character,  which  relate 
(o  direction  and  supervision;  and  supervision  is  as  necessarily  incura- 
bt>nt  upon  the  board  as  direction,  unless  the  affairs  of  banks  are  to  be 
left  entirely  to  the  trustworthiness  of  cashiers.    Doubtless  there  are 


80  PRACTICAL  BANKINCJ. 

On  the  other  hand,  it  is  said  that  if  a  stricter  rule  of  liability  were 
applied  to  directors,  many  who  are  now  serving  would  immediately  re- 
sign, and  their  places  would  be  tilled  by  others  less  highly  regarded  for 
their  business  ability.  Many  a  director  frankly  says  that  he  cannot  afford 
to  give  the  time  required  to  attend  all  the  meetings.  If.  therefore,  the 
rule  of  liability  was  stricter  banks  would  be  obliged  to  select  persons  who 
have  more  leisure,  persons  not  actively  engaged  in  business,  and  less 
qualified  to  render  assistance.  The  choice  then  seems  to  be  between 
the  leading  men  in  a  community  who  are  able  to  attend  somewhat 
irregularly,  though  often  giving  valuable  advice  on  other  occasions,  and 
men  less  competent  who  would  not  be  worth  much  if  they  did  attend. 
What,  then,  shall  a  bank  do?  If  it  relies  on  the  latter  class,  less 
assistance  would  be  rendered  by  them  than  is  rendered  by  those  now 
serving,  who  attend  less  frequently,  but  whose  knowledge,  whether 
obtained  at  board  meetings  or  on  other  occasions,  is  truly  worth  some- 
thing. Evidently,  banks  believe  that  the  wiser  course  is  to  continue  to 
choose  directors  as  they  have  done,  to  fill  vacancies  with  similar  men, 
otherwise  they  would  have  made  dill'erent  selections.      In  every  board 


many  matters  which  stand  on  middle  ground,  and  where  it  may  be 
difficult  to  fix  the  responsibility,  but  I  think  there  is  no  such  difficulty 
here.  The  idea  which  seems  to  prevail  in  some  quarters,  thu"t  a  director 
is  chosen  because  he  is  a  man  of  good  standing  and  character,  and 
on  that  account  Avill  give  reputation  to  the  bank,  and  that  his  only  ofiice 
is  to  delegate  to  some  other  person  the  management  of  its  affairs,  and 
rests  on  that  until  his  suspicion  is  aroused,  which  genei'ally  does  not 
happen  until  the  mischief  is  done,  cannot  be  accepted  as  sound.  It  is 
sometimes  suggested,  in  effect,  that,  if  larger  responsibilities  are  de- 
volved upon  directors,  few  men  would  be  willing  to  risk  their  character 
and  means  by  taking  such  an  office;  but  Congress  had  some  sulistantial 
purpose  when,  in  addition  to  the  provision  for  executive  officers,  it 
further  provided  for  a  board  of  directors  to  manage  the  bank  and 
administer  its  affairs.  The  stockholders  might  elect  a  cashier,  and  a 
president  as  weU.  The  banks  themselves  are  prone  to  state,  and  hold 
out  to  the  public,  who  compose  their  boards  of  directors.  The  idea  is 
not  to  be  tolerated  that  they  serve  as  merely  gilded  ornaments  of  the 
institution,  to  enhance  its  attractiveness,  or  that  their  reputation  should 
be  used  as  a  lure  to  customers.  What  the  public  suppose,  and  have 
the  right  to  suppose,  is  that  those  men  have  been  selected  by  reason  of 
their  high  character  for  integrity,  ther  sound  judgment,  and  their  capac- 
ity for  conducting  the  alfairs  of  the  bank  safely  and  securely.  The 
public  act  on  this  presumption,  and  trust  their  property  with  the  bank 
in  the  confidence  that  the  directors  will  discharge  a  substantial  duty. 
How  long  would  any  national  bank  have  the  confidence  of  depositors 
or  other  creditors  if  it  were  given  out  tliat  these  directors,  whose  names 
so  often  stand  at  tlie  head  of  its  business  cards  and  advertisements,  and 
who  are  always  used  as  makeweights  in  its  solicitations  for  business, 
would  only  select  a  cashier,  and  surrender  the  management  to  him?  It 
is  safe  to  say  such  an  institution  would  l)e  shunned  and  could  not 
endure.  It  is  inconsistent  with  the  purpose  and  policy  of  the  banking 
act  that  its  vital  interests  be  committed  to  one  man.  without  oversight 
and  control."— Gibbons  v.  Anderson,  80  Fed.  Rep.  345. 


Directors  anb  loans.  81 

there  are  two  or  three,  or  perhaps  more,  who  are  selected  because  they 
have  time  to  attend  meetings,  advise  and  render  other  assistance.  Gen- 
erally, however,  the  attendance  bj'  the  larger  number  is  rare.  And 
in  the  large  cities  especially  only  a  few  banks  have  boards  whose 
attendance  is  general.  But  the  remarlc  is  worth  repeating  that  many 
directors,  who  are  not  able  to  be  present  at  stated  meetings,  often  go 
into  the  banks  with  which  they  are  connected,  it  may  be  half  a 
dozen  times  a  day,  and  make  inquiries  concerning  the  paper  that  has  been 
discouut(  d  or  offered  for  discouut,  and  make  valuable  suggestions  relating 
to  its  business.  The  true  worth  of  a  director,  therefore,  cannot  always  be 
measured  by  his  attendance  at  board  meetings,  nor  his  efficiency  when 
thus  present.  And  his  interest  in  his  bank  shown  outside  board  meet- 
ings should  be  considered  by  courts  when  answering  the  question 
whether  he  has  been  negligent  or  not  in  performiug  his  duties.  We 
know  that  the  directors  of  one  of  the  most  prosperous  banks  in  this 
country  hardly  ever  attend  boai'd  meetings,  and  yet  most  of  them  are 
in  the  bank  almost  every  day  and  take  the  deepest  interest  in  its  affairs. 
They  do  not  attend  the  meetings  with  I'egularity  because  they  are  very 
busy  men,  and  it  is  difficult  for  them  to  be  present  at  stated  times. 
That  baulc  surely  would  not  act  wisely  in  substituting  for  these  men, 
who  are  large  shareholders,  other  men  owning  less  stock  and  possessing 
less  business  ability  though  having  more  time  and  disposed  to  do  their 
best. 

A  board  of  directors  can  act  legally  only  as  a  board.  The  action  or 
promise  of  a  director  outside  is  not  binding  on  the  bank.  There  are 
some  important  questions  concerning  the  effect  of  knowledge  coming  to 
him  of  tlie  affairs  of  the  bank,  and  how  far  his  duty  extends  in 
communicating  anything  of  importance  that  he  may  hear.  Whatever 
his  duty  may  be,  it  is  certain  that  only  as  a  board  are  the  acts  of  any 
member  binding. 

Tlie  duties  and  powers  which  are  usually  conferred  on  the  board  by 
the  national  and  state  laws  may  be  classed  as  legislative,  supervisory 
and  appointing.  Tiie  legislative  power  consists  in  creating  such  offices 
as  the  business  of  the  bank  shall  render  necessary,  regulating  their 
duties  and  salaries  ;  directing  the  modes  in  which  the  baik  shall  Lc 
conducted,  and  generally  all  that  pertains  to  the  management  of  the 
Slock,  property,  and  effects  of  the  corporation.  The  appointing  power 
consists  in  selecting  proper  incumbents  for  the  created  offices,  while  rhe 
supervisory  power  is  indicated  by  all  the  foregoing,  and  by  the  ability 
to  dismiss  the  appointees  at  pleasure.  But  a  ninn  cannot  proper!;- 
supervise  himself  in  the  performance  of  public  services,  nor  limit  and 
regulate  their  scope  and  extent,  nor  fix  his  compensation  therefor; 
hence  the  powers  of  the  board  can  be  exercised  efficiently  only  on 
persons  who  are  not  members  of  the  board.  Nor  is  the  inexpediency 
of  uniting  in  the  same  person  the  duties  of  grantor  and  grantee,  master 
and  servant,  agent  and  principal,  a  contrivance  of  man;  it  proceeds 

6 


82  PRACTICAL   BANKING. 

from  his  organization.  No  person  can  sit  at  a  board  of  directors 
witliont  observing  tliat  agents  who  are  not  directors,  are  supervised 
more  freely  than  agents  who  are  directors.  A  practical  admission  of 
this  is  evinced  by  some  discordant  boards,  who,  in  deciding  on  paper 
offered  by  directors,  vote  by  a  species  of  ballot,  while  in  other  boards, 
the  offered  notes  are  passed  under  the  table,  from  seat  to  seat;  and  a 
note  is  deemed  rejected,  if,  in  its  transit,  some  director  has  secretly 
folded  down  one  of  its  corners.  Even  the  separation  of  the  legislature 
into  two  chambers,  checks  the  esprit  du  corps,  and  pride  of  opinion 
which  would  urge  one  chamber  into  extremes,  with  no  means  of  extri- 
cation from  a  false  position.  A  separation  operates  like  the  break  of 
continuity  in  an  electric  telegraph,  arresting  a  common  sympathy, 
passion,  or  prejudice,  which,  in  a  single  chamber,  rushes  irresistibly 
to  its  object.  Still,  in  many  banks  (the  Bank  of  England  included)  the 
president  (entitled  governor  in  the  Bank  of  England)  is  the  chief  execu- 
tive officer,  as  well  as  head  of  the  legislative  department.  The  Bank  of 
England  is,  however,  controlled  by  twenty-four  directors,  the  largeness 
of  which  number  naturally  mitigates  the  influence  of  the  members 
individually,  and  hence  diminishes  ratably  the  objection  against  its 
executive  organization.  Such  an  organization  may  operate  well,  where 
the  board  consists  of  a  small  number  of  members,  yet  the  good  is  not  a 
consequence  of  the  organization,  but  in  despite  thereof;  for.  whatever 
weakens  the  power  of  supervision,  must  diminish  its  benefits.  The 
joint-stock  banks  of  England  are  all  controlled  by  officers  called  man- 
agers, and  who  are  not  members  of  the  board,  though  they  sit  thereat 
ex  officio  for  mutual  explanation  and  instruction. 

That  the  board  should  legislate,  supervise  and  appoint,  but  not  exe- 
cute, occasioned  probably  the  exclusion  from  the  directorship  that  efirly 
prevailed,  and  widely  continues,  of  the  person  who  occupies  the  office 
of  cashier,  and  who,  with  us,  was  once  almost  universally  the  chief 
executive  bank  officer.  But  the  executive  power,  located,  should  center 
in  only  one  person;  a  divided  i-esponsibility  creating  necessarily  a 
divided  vigilance.  Thirteen  men  acting  as  an  executive  will  not 
produce  the  vigilance  of  one  man  multiplied  by  thirteen,  but  rather  the 
vigilance  of  one  man  divided  by  thirteen.  The  inspection  of  a  picture 
by  ten  thousand  promiscuous  men  will  not  detect  as  many  imperfec- 
tions in  it  as  the  scrutiny  of  one  person,  intent  on  discovering  to  the 
extent  of  his  utmost  vigilance;  hence,  large  assemblies  refer  every 
investigation  to  a  small  committee,  the  chairman  of  which  is  expected 
to  assume  the  responsibility  of  the  examination,  while  the  other  mem- 
bers are  more  supervisors  than  actors.  Here,  again,  as  in  most  other 
modes  which  business  assumes  by  chance  apparently,  our  organization 
dictates  the  mode.  When,  thei'efore,  we  want  an  army  of  the  highest 
efficiency,  we  possess  no  alternative  but  to  intrust  it  to  a  single  com- 
mander-in-chief; and  if  we  want  a  bank  of  the  highest  efficiency,  as 
respects  safety  and  productiveness,  we  must  intrust  it  to  a  single  exec- 


DIRECTORS   AND  LOANS.  83 

utive,  under  any  title  we  please;  but  to  one  man,  who  will  make  the 
bank  the  focus  of  his  aspirations,  and  know  that  on  his  prudence  and 
success  will  depend  the  character  he  most  affects,  and  the  duration  of 
his  oflice.  with  all  its  valued  associations  and  consequences. 

If  the  proposed  organization  is  the  best  that  can  be  devised  for  a 
bank,  the  magnitude  of  power  to  be  delegated  is  no  proper  argument 
against  its  delegation,  but  only  a  motive  for  prudence  in  selecting  the 
delegate.  A  man  of  known  skill  and  established  fidelity  is  not  always 
procurable  for  the  proposed  duties,  especially  by  small  banks  that  can 
not  render  available  a  l)reach  of  the  tenth  commandment.  But.  provi- 
dentially, the  world  is  not  so  dependent  on  a  few  eminent  men.  as 
their  self-love  and  our  idolatry  may  believe.  Every  well-organized 
person  possesses  an  aptitude  to  groM-  to  the  stature  of  the  station  in 
which  circumstances  may  place  him,  and  some  of  the  most  successful 
l)ankers  of  our  country  acquired  their  skill  after  they  became  bankers. 
The  like  principle  is  discoverable  in  all  occupations,  the  highest  not 
excepted.  Ffw  of  our  judges,  generals,  diplomats,  legislators,  or  civil 
executives  were  accomplished  in  their  vocation  before  they  became 
invested  therewith.  Skill  is  consequent  in  some  degree  to  station  and 
its  excitement,  though  a  vulgar  error  expects  (what  is  impossible)  that 
official  dexterity  and  competence  should  be  possessed  in  advance 

The  duties  of  a  board  will  rather  commence  than  end  with  the 
appointment  of  its  executive.  Their  proper  duties  are  supervisory. 
Nature  aids  the  discharge  of  such  duties  when  the  supervisor  is  distinct 
from  the  supervised;  indeed,  one  of  the  most  difficult  tasks  of  a 
supervisor  consists  in  restraining  the  undue  captiousness  that  is  natural 
to  the  position.  The  president  of  the  bank,  as  head  of  the  corporation, 
cannot  perform  supervisory  duties  too  efficiently,  and  he  may  well  be 
entitled  to  a  pecuniary  compensation  therefor.  He  should  deem  them 
under  his  special  charge,  but  not  to  supersede  therein  the  modified 
duties  of  the  other  directors.  Supervision  over  the  manager's  official 
proceedings  will  be  as  salutary  to  him  as  proper  to  the  board.  Dark- 
ness is  proverbially  unfavorable  to  purity,  but  only  by  reason  of  the 
concealment  it  creates;  every  other  means  of  concealment  is  equally 
productive  of  impurity.  A  man  can  easily  reconcile  to  his  judgment 
and  conscience  what  cannot  be  reconciled  to  disinterested  supervisors; 
hence,  if  an  officer  knows  so  little  of  human  nature  as  to  deem  super- 
vision offensive,  he  is  unfit  to  be  trusted.  That  the  supervision  may  be 
full,  it  must  be  systematic.  Every  director  will  usually  attend  meet- 
ings of  the  board  in  a  degree  inverse  to  their  frequency,  but  twice  a 
week,  or  certainly  once,  where  the  bank  is  not  very  small,  will  be  as 
short  as  is  compatible  with  a  due  inspection,  singly,  of  the  loans,  ir 
some  regular  order,  that  may  have  been  granted  by  the  manager  since 
the  last  session  of  the  board.  A  director  will  thus  learn  individually 
whether  the  power  to  make  loans  has  been  prudently  exercised;  and  he 
•will  learn  the  opinion  which  any  of  the  board  may  express  in  relation 


84  PRACTICAL  BANKING. 

to  the  borrowers  or  their  sureties,  especially  in  cities  where  borrowers 
are  generally  known  to  the  board;  and  a  manager  may  advantageously 
defer  to  it  the  consummation  of  many  loans  in  relation  to  which  his 
own  information  is  questiona])]e,  or  about  which  he  desires  time  to 
deliberate.  Such  a  deferring  will  often  constitute  a  less  offensive  mode 
of  avoiding  an  objectionable  discount  than  a  direct  and  personal 
refusal,  though  trulj'  the  kindest  act  a  banker  can  perform,  next  to 
granting  a  loan,  is  to  promptly  inform  an  applicant  that  he  cannot  suc- 
ceed, wlien  the  banker  knows  the  loan  will  not  be  granted. 

The  supervision  of  the  board  must  be  as  comprehensive  as  the 
powers  of  the  manager.  The  revision  of  loans  will  enable  the  board  to 
ascertain,  not  merely  the  solvency  of  the  bank's  assets,  but  whether 
its  business  is  conducted  without  partiality,  or  unwholesome  bias  of 
any  kind.  Nearly  every  undue  partiality  possesses  concomitants  that 
may  lead  to  its  detection;  for  instance,  an  unusual  laxity  of  security,  or 
length  of  credit;  with  unusual  frequency  of  renewals  in  a  direct  form, 
or  an  indirect,  so  as  to  screen  the  operations.  A  manager,  properly 
sensitive  of  his  reputation,  and  properly  diffident  of  his  natural  infirm- 
ities, will  be  reluctant  to  grant  loans  to  his  relatives,  or  special  friends; 
and  never  to  himself,  or  any  person  with  whose  business  operations  he 
is  connectad.  To  enable  directors  to  judge  of  these  particulars,  a  reg- 
ular attendance  at  the  stated  meetings  is  necessary;  but  memory  alone 
must  not  be  relied  on,  except  to  suggest  queries,  which  should  always 
be  capable  of  solution  by  proper  books  and  indexes,  that  must  bo 
within  reach  of  the  directors;  who  should  habitually  inspect  the  books, 
that  the  practice  may,  in  no  case,  seem  an  invidious  peculiarity.  In 
all  scrutinies,  however,  the  directors  should  remember  that  in  mere 
judgment  and  expediency  they  may  differ  from  the  manager,  and  he 
may  still  be  right,  for  banking  constitutes  his  business,  while  to  them 
it  is  an  Incidental  occupation.  Lenity  is  proper  even  to  his  undoubted 
errors,  when  they  are  of  a  nature  which  experience  may  correct;  but 
time  will  only  inveterate  bad  intentions,  and  their  first  unequivocal 
appearance  should  produce  an  unrelenting  forfeiture  of  his  office. 

The  board  must  understand  the  liabilities  of  the  bank  to  its  depos- 
itors, bank-note  holders,  and  other  creditors;  also  the  funds  of  the 
bank,  and  its  available  resources;  so  as  to  judge  how  far  the  honor  of 
the  bank  is  safe  in  the  care  of  its  manager.  The  character  of  depos- 
itors and  borrowers  are  also  proper  subjects  of  general  scrutiny  by  the 
board,  by  reason  that  the  reputation  of  a  bank  is  inferable  from  the 
reputation  of  its  dealers;  not  that  disreputable  people  should  be  rejected 
as  depositors,  but  a  bank  is  not  an  exception  to  the  proverb  Avhich 
speaks  "of  l)irds  of  a  feather;"  and  when  the  customers  of  a  bank  are 
generally  respectable  in  their  character  and  business,  we  may  be  sure 
that  the  management  of  the  bank  is  at  least  ostensibly  moral  and 
mercantile. 


DIRECTORS   AND   LOANS.  B5 

The  ticklers  of  a  bauk  are  books  which  show  in  detail  tlie  debts 
duo,  prospectively  to  a  bank,  and  the  days  of  payment.  The  aggregate 
footing  of  the  ticklers  will  accordingly  exhibit  the  amount  of  loans 
not  yet  matured,  and  inductively  the  amount  that  is  past  due.  The 
information  which  relates  to  the  amount  past  due  is  often  given 
reluctantly,  but  a  knowledge  of  it  is  vastly  important  in  the  proper 
supervision  of  a  bank;  and  when  tested  by  the  ticklers,  the  information 
cannot  well  be  deceptions,  or  evaded.  In  knowing  the  amount  of  the 
past  due  loans,  the  board  can  pretty  accurately  conjecture  the  character 
of  the  bank's  customers.  Such  loans  should  be  satisfactorily  explained 
by  the  manager,  and  the  means  he  is  taking  in  their  collection.  The 
like  may  be  said  of  over-drafts,*  which  are  rarely  permitted  by 
American  bankers,  though  in  England  they  seem  to  constitute  one  of 
the  regular  modes  of  advancing  money  to  customers.  Whether  ihey 
shall  be  permitted  is  within  the  proper  discretion  of  the  board,  and 
should  they  occur,  inadverently,  the  occurrence  ou'^ht  to  be  manifested 
to  the  board.  An  exemption  from  losses  is  impracticable  in  long-con- 
tinued operations;  yet  all  grades  of  intellect  are  procurable,  hence 
the  retention  of  an  officer  is  unwise  when  his  results  are  unsatisfactory. 
Every  man  can  adduce  excuses  which  no  person  may  be  able  to  contro- 
vert; but  when  miscarriages  are  frequent,  or  important,  the  board 
should  assume  that  something  wrong  exists  and  eludes  detection,  rather 
than  that  nature  deviates  from  her  accustomed  processes,  making  vig- 
ilance unsafe,  and  skill  unprofitable. 

The  examination  of  vaults,  and  counting  of  money,  rarely  reveal 
defalcations,  till  the  defaulter  no  longer  endeavors  to  conceal  his 
delinquencies.  The  counting  is  not  pernicious,  if  the  board  choose  to 
amuse  their  vigilance  therewith;  but  we  have  not  attempted  to  desig- 
nate modes  in  which  frauds  are  detectable;  the  ingenuity  of  conceal 
ment  being  naturally  as  great  as  the  ingenuity  of  detection.  Besides, 
the  detection  of  skillful  frauds  requires  a  greater  familiarity  with 
banking  accounts,  a  more  laborious  inspection  of  bank  books  than  can 
ordinarily  be  expected  of  bank  directors.  For  the  detection  of  frauds, 
therefore,  the  best  practical  reliance  is  a  supervision,  in  the  way  we 
have  indicated,  of  the  bank's  business,  and  a  familiar  observation  of 
the  general  conduct,  habits  and  expenses  of  the  manager,  as  well  as 
of  all  the  subordinate  officers;  the  latter,  however,  are  more  especially 
within  the  duties  of  the  manager.  The  ruin  of  a  bank,  by  fraud,  com- 
mences usually  in  the  personal  embarrassment  of  the  d(>Iinqupnt.  con- 
tracted by  improper  self-indulgences,  or  the  assumption  of  secret 
hazards.  Men  rarely  plunder  till  their  conduct  is  otherwise  disorgan- 
ized, external  symptoms  of  which  observant  directors  may  discover. 
A  bank  officer,  therefore  (and  the  higher  his  official  position  the  more 


*The  term   "over-draft"   means  tiiat   the  depositor  has  drawn  for 
more  money  than  the  balance  to  his  credit. 


86  PRACTICAL  BANKING. 

urgent  the  rule),  who  will  not  keep  disengaged  from  all  suretyship  and 
from  business  that  may  render  him  pecuniarily  necessitous,  is  as  unfit 
to  be  intrusted  with  a  bank,  as  a  nurse  who  frequents  small-pox 
hospitals  is  unlit  to  be  trusted  with  unvaccinated  children.  In  menag- 
eries, animals  are  kept  peaceful  by  preventing  the  cravings  of  hunger; 
bank  executives  require  a  similar  assuasive;  not  by  glutting  them 
with  great  salaries, 'but  by  preserving  them  from  expenditures  unsuited 
to  their  income,  and  fi'om  pecuniary  liabilities.  A  bank  manager  of 
undoubted  wealth  presents  therein  the  best  attainable  guaranty  against 
misconduct,  and  is  entitled  to  greater  freedom  of  action  in  his  personal 
transactions  than  ofl3cers  of  ordinary  circumstances;  still  we  will 
venture  the  advice  that  when  a  man  wants  to  be  more  than  a  bank 
manager,  especially  when  he  wants  to  employ  much  more  than  his  own 
funds,  ho  had  better  cease  from  occupying  a  station  which  he  is  too 
ambitious  or  too  avaricious  to  till  under  restraints,  which  exptn-ience 
shows  are  alone  safe. 

Some  years  ago  when  a  loss  happened  in  one  of  the  New  York  banks 
by  the  wrongful  action  of  a  loan  clerk,  a  director  thought  it  would  be 
well  for  them  all  to  make  a  thorough  examination  of  the  business  of  the 
bank.  Another  asked  the  president  what  he  thought  of  the  suggestion. 
He  replied  that  it  would  be  a  good  thing  for  them  to  do.  They  then 
inquired  where  the  examination  should  begin,  and  he  replied  by 
suggesting  that  it  might  be  well  for  them  to  count  the  paying  teller's 
cash.  This  proved  a  somewhat  longer  task  than  they  anticipated,  but 
they  clung  manfully  to  their  work.  They  then  came  to  the  president 
for  instructions.  He  told  them  to  examine  all  the  paper  that  had  been 
discounted  and  the  names  of  the  makers  and  indorsers,  and  this  was 
done.  Again  they  were  ready  for  something  more,  and  he  said  they 
might  start  with  one  of  the  ledgers  and  compare  the  entries  with  the 
sources  from  which  they  were  taken  in  order  to  verify  the  work  of  the 
bookkeeper.  Once  more  their  self-imposed  task  was  resumed.  xVfter  a 
short  time  they  came  into  the  president's  room  and  confessed  that  they 
did  not  know  what  they  were  about  when  they  undertook  to  make  a 
complete  examination  of  the  bank.  They  then  learned  for  the  first 
time  in  their  lives  that  to  know  all  about  the  bank  would  require 
months  of  work— far  more  time  than  they  could  command.  Never- 
theless, it  is  well  for  directors  to  make  some  examination  because,  like 
that  of  a  bank  examiner,  if  there  is  anything  wrong  they  may  discover 
it;  besides,  the  practice  of  making  an  examination  occasionally  may 
have  a  restraining  influence  on  those  who  write  up  the  books,  receive 
and  pay  money,  and  keep  them  more  closely  in  right  ways. 

A  still  better  course  is  to  have  the  business  of  the  bank  thoroughly 
examined  from  time  to  time  by  one  or  two  skillful  accountants.  Thin 
course  is  pursued  by  some  banks  and  especially  by  the  larger  trust 
companies.  It  is  very  common  in  Great  Britain,  and  the  results  of  the 
examinations  are  often  given  to  the  public  for  the  purpose  of  attracting 


DIRECTORS   AND  LOANS.  87 

business.  A  body  of  chartered  accountants  exists  in  London,  men  of 
great  skill  and  merit,  who  are  usually  selected  to  conduct  the  examina- 
tions. Such  a  body  ought  to  be  organized  in  this  country— men  of  high 
repute,  whose  certificate  would  bo  accepted  by  the  world  as  a  guaranty 
of  the  true  condition  of  the  institution  examined.  With  so  many 
moneyed  concerns  now  existing  liere,  such  an  association  would  serve 
a  highly  useful  purpose;  while  the  worli  of  training  men  might  be 
undertaken  by  some  of  our  technical  institutions,  supplemented  by 
experience  in  examining  and  auditing  the  accounts  of  corporations. 

SECTION  II. 

DISCOUNTING. 

A  function  of  the  highest  importance  imposed  on  directors  is  in 
lending  the  bank's  resources.  An  analysis  of  these  will  reveal  still 
more  clearly  the  part  that  a  bank  performs  in  the  world  of  production 
and  exchange,  and  the  intelligence  and  thoughtfulness  that  directors 
should  exercise  in  using  the  capital  and  other  resources  of  their  bank. 
Capital*  used  in  production  is  either  fixed  or  floating.  Fixed  capital  is 
invested  in  lands,  buildings, machinery, mines. canals, railways  and  th'ir 
equipments,  telegraphs,  etc.,  all  these  being  used  in  the  creation  and 
distribution  of  wealth.  Floating  capital  is  invested  in  things  produced, 
whether  raw  material  or  articles  completed  or  in  process  of  completion. 
It  also  pays  for  the  labor  and  other  service  (wages  and  salaries) 
necessary  to  production  and  to  the  distribution  of  products.  The  pro- 
cesses of  production  are  very  numerous  and  distinct.  Each  produce". 
when  he  has  completed  his  part  of  these  processes,  desires  to  sell  his 
product,  realize  his  profits,  and  begin  again  with  fresh  materials.  The 
quicker  he  can  do  this,  and  the  oftener  he  can  repeat  it,  the  greater 
will  be  his  profit;  for,  in  a  normal  state  of  things,  each  repetition  brings 
a  profit.  All  the  floating  capital  which  he  requires  is  enough  to  enable 
him  to  do  this  easily,  and  without  friction.  •  If  each  article  were  sold 
for  cash  as  soon  as  completed  and  no  store  of  raw  material  had  to  be 
kept  in  excess  of  immediate  wants,  the  minimum  of  floating  capital 
would  be  attained;  and  if  the  fairly  estimated  profit  were  always 
realized,  the  wealth  of  the  producer  would  be  constantly  increasing,  and 
his  business  miglit  either  be  enlarged  or  a  surplus  safely  withdrawn  for 
outside  uses.  But  immediate  sale  of  products  by  the  pi'oducer,  and 
immediate  payment  for  them  by  the  buyer  are  practically  impossible. 
A  long  process  of  digestion  must  be  gone  through  with  before  ultimate 
payment  and  the  final  payer  (who  is  the  consumer)  are  reached;  and 
consequently   the   producer   cannot    immediately   sell,    and    the   buyer 


♦This  paragrapli  and  the  next  arc  reprinted  from  the  former  edi- 
tion, and  were  written  by  George  Walker, 


S8  PRACTICAL  BANKING. 

cannot  immediately  pay.  Markets  may  be  dull,  or  overstocked,  and 
buyers  may  be  either  slow  to  come  forward,  or  come  without  ready 
money.  Hence,  the  producer  requires  additional  floating  capital  to 
carry  his  products  till  sold;  and  the  buyer  requires  credit  till  he  can  get 
the  means  to  pay  for  the  property  bought  by  its  resale.  But  a  sale 
on  credit  is  to  the  producer,  so  far  as  the  use  of  capital  is  concerned, 
precisely  like  carrying  the  property  without  sale.  Till  he  gets  baclv  the 
value  of  his  production,  he  must  depend  on  other  means  to  carry  on 
his  business.  He  must  find  the  necessary  capital  elsewhere,  or  his  pro- 
duction stops  till  payment  by  the  buyer  enables  him  to  start  again. 
But  a  healthy  business  cannot  stop;  it  must  go  on  constantly  and  evenly, 
if  the  highest  economy  is  to  be  attained.  Stoppage  means  idle  facto- 
ries, rusting  machinery,  unemployed  workmen.  The  friction  and  loss 
incident  to  stopping  and  stai'ting  would  eat  up  a  large  profit,  and  would 
destroy  the  even  current  of  production  upon  which  stability  of  prices 
largely  depends.  The  producer  cannot  stop;  he  must  from  some  source, 
get  the  money  to  go  on  with,  and  fortunately  his  business  furnishes 
the  basis  on  which  to  get  it.  He  must  borrow  money  on  the  faith  of 
the  property  sold.  He  cannot,  it  is  true,  pledge  the  property  specif- 
ically, for  lie  has  sold  it  and  parted  witli  possession,  and  so,  we  repeat, 
he  must  borrow  on  the  faith  and  not  on  the  pledge  of  it.  But  though 
he  cannot  pledge  the  property  itself,  he  pledges  what  represents  it 
namely,  the  written  promise  of  the  buyer  to  pay  the  price  of  it  at  a 
fixed  future  date.  In  mercantile  language,  he  gets  the  buyer's  note  or 
bill  discounted,  and  here  comes  in  the  first  legitimate  function  of  the 
bank,  a  function  which  underlies  all  its  operations,  and  is  the  touch- 
stone of  the  regularity  of  its  business. 

To  reduce  it  to  a  definition  or  formula,  it  may  be  said  that  the  first 
and  most  important  function  of  a  bank  is,  by  the  use  of  the  capital 
which  it  controls,  to  bridge  over  the  periods  of  credit  which  necessarily 
intervene  between  production  and  consumption,  in  such  a  manner  as  to 
give  back  to  each  producer,  or  middleman,  as  quickly  as  possible,  the 
capital  invested  by  him  in  such  products,  in  order  that  he  may  use  it 
over  again  in  new  production  or  new  purchases.  In  this  way  the 
interruption  of  business,  which  would  be  a  public,  as  well  as  a  private 
loss,  is  avoided.  Thus  defined,  banking  is  not  only  one  of  the  most 
useful,  but  it  is  also  one  of  the  most  safe  and  healthy  of  business 
operations.  Its  safety  lies  in  the  fact  that  every  loan  of  the  charac<^er 
described,  is  based  on  property  of  intrinsic  value;  and  it  is  the  property 
which,  in  the  last  resort,  pays  all  the  loans  predicated  upon  it  in 
its  progress  of  transmission  from  the  producer  to  the  consumer.  It 
gathers  value  as  it  goes,  by  the  addition  of  all  intervening  profits  inci- 
dent to  handling  and  resale,  and  on  final  sale  the  consumer  pays  the 
first  cost  and  nil  those  profits  added  to  it.  This,  of  course,  is  on  the 
supposition  that  the  transactions  have  been  fairly  profitable.  In  +ho 
case  supposed  the  property  has  been  the  real  debtor  throughout,  and 


DIRECTOKS    AND   LOANS.  OV 

the  real  payer  of  the  discounts.  It  h:is  purchased  the  paper  which  w?s 
the  subject  of  each  discount  in  succession,  and  has  finally  been  ex- 
changed with  consumer  for  the  cash,  which,  in  effect,  pays  them  all.  The 
several  makers  of  the  paper,  though  debtors  in  form,  are  only  insurers  or 
guarantors  in  fact.  They  pledge  their  respective  property  to  the  pay- 
ment of  the  loans;  but  the  primary  and  generally  sufficient  pledge  is  the 
property  for  which  the  notes  are  given.  The  wealth  of  the  makers  is 
a  necessary  margin  or  guaranty,  because  the  property  sold  may  be 
destroyed,  or  the  value  may  fall,  or  some  one  of  its  successive  holders 
may,  by  misfortune  or  fraud,  divert  its  proceeds  from  their  legitimate 
application,  namely,  payment  to  the  last  seller.  In  a  great  majority 
of  cases,  however,  no  such  contingency  happens,  and  the  guaranty  is 
not  resorted  to.  The  intervening  profits  are  an  additional  safeguard, 
inasmuch  as  each  party,  when  he  sells,  ought  to  receive  a  larger  note 
than  he  gave  when  he  bought  the  goods. 

Having  described  the  nature  and  proper  functions  of  capital  en- 
tiusted  to  bank  directors,  we  shall  next  describe  the  different  ways 
of  disposing  of  it  to  lenders,  the  forms  of  obligations  taken,  and  the 
nature  of  the  security  accepted.  The  most  common  form  of  obligation 
is  a  promissory  note.  There  are  two  well  known  kinds,  commercial 
notes  and  notes  given  for  accommodation.  Commercial  paper  consists 
of  notes  made  by  an  individual,  firm  or  corporation,  which  are  usually 
indorsed  by  one  or  more  parties  before  their  acceptance  and  discount. 
There  is.  however,  much  single  name  paper,  as  it  is  termed,  discounted 
by  banks  in  the  United  States,  containing  simply  the  name  of  the 
maker.  One  of  the  old  questions  among  bankers  is  whether  it  is  pru- 
dent to  take  paper  of  this  kind,  yet  it  is  a  common  practice  among  the 
best  banks.  Such  paper  is  supposed  to  be  of  the  first  quality,  made  by 
firms  or  individuals  or  corporations  possessing  abundant  means,  who 
will  discharge  the  same  at  maturity.  Whether  it  should  be  taken  or 
not  is  a  matter  purely  of  judgment  among  bank  officers.  There  is  a 
much  larger  quantity  of  such  paper  made  and  taken  since  the  accumu- 
lation of  so  much  wealth  than  there  was  in  the  earlier  days,  enough 
indeed  to  form  the  basis  of  a  regular  quotation  in  the  mercantile  news- 
papers. 

By  far  the  larger  quantity  of  paper  contains  at  least  two  names, 
those  of  the  maker  and  of  the  indorser.  Yet,  in  fact,  there  is  often 
only  one  good  name  attached  to  mercantile  paper.  A  bank,  for 
example,  may  have  a  large  customer,  of  undoubted  standing,  engaged 
in  the  dry  goods  business.  He  constantly  presents  notes  for  discount 
taken  by  him  from  his  customers  in  the  liquidation  of  merchandise 
accounts.  His  bank  discounts  it  with  little  or  no  knowledge  of  his  cus- 
tomers, on  the  supposition  tliat  he  knows  them  and  that  they  have  some 
ability  to  pay,  but  chiefly  on  liis  own  indorsement. 

The  Bank  of  France  re(iuires  three  names  to  paper,  but  it  is  said 
that  perhaps  it  succeeds  no  better  than  other  banks,  not  getting  more 


90  PRACTICAL  BANKING. 

than  one  good  name  out  of  the  three.  In  other  words,  at  least  one  of 
the  three  is  often  a  person  of  not  much  account,  but  the  bank  it  is 
supposed  linows  some  one  of  the  number  who  is  able  to  respond.  The 
Bank  of  Berlin  requires  two  indorsers  to  all  paper  bought  or  dis- 
counted. In  theory,  the  more  names  the  better,  but  it  need  hardly  be 
remarked  that  one  good  name  is  better  than  a  large  number  of  poor 
ones,  and  that  quality  rather  than  the  number  of  names  determines  the 
worth  of  paper. 

The  characteristics  of  a  promissory  note  are  well  understood;  it 
must  be  dated,  contain  words  of  negotiation,  the  time  for  payment 
must  be  stipulated,  also  the  person  to  whom  it  is  payable  unless  pay- 
able to  the  bearer,  and  it  must  be  signed. 

A  few  words  concerning  the  several  parts.  First,  it  must  be  dated. 
If  this  be  omitted,  as  sometimes  happens  in  filling  up  a  blank,  the 
omission  can  be  supplied  by  proper  evidence. 

A  note  should  not  be  made  and  delivered  on  Sunday.  We  do  not 
suppose  that  many  mistakes  of  this  kind  happen,  yet  it  is  possible  for  a 
bank  to  make  a  mistake  in  discounting  a  note  made  on  that  day.  If  it 
was  thus  dated,  but  was  not  delivered  until  the  next  day,  it  would  be 
legal,  as  the  validity  of  a  note  depends  on  the  time  of  its  delivery  and 
not  on  the  time  of  its  inception.  Again,  even  though  a  note  was  made 
and  delivered  on  Sunday,  and  the  payee  could  not  sue  on  the  note 
itself  to  recover  the  amount,  he  could  throw  it  aside  and  sue  for  the 
money  itself.  In  other  Avords,  he  could  disregard  the  actual  or  express 
contract,  and  sue  on  the  contract  which  the  law  implies,  that  a  person 
who  receives  money  under  such  conditions  must  return  it. 

It  is  usually  said  that  no  fixed  form  of  words  is  needful  to  make 
a  note  negotiable.  Any  words  expressing  this  intent  are  sufficient.  The 
words  "or  order,"  or  "the  bearer."  have  come  into  general  use.  and 
their  significance  is  well  understood.  If  a  note  contains  any  clause  in 
addition  to  those  usually  written,  the  question  may  arise  Avhether  the 
note  is  invalidated  by  them.  This  depends  on  their  nature.  If  they 
have  the  effect  of  rendering  the  time  of  payment  or  the  amount 
uncertain,  they  will  impair  its  validity,  for  one  of  the  fundamental 
principles  of  a  negotiable  note  is  that  the  promise  must  be  uncondi- 
tional, certain,  without  any  contingencies.  A  clause  is  often  added 
relating  to  attorney's  fees  and  costs  of  collection  in  the  event  of  non- 
payment. Whether  it  has  the  effect  of  impairing  the  negotiability  of  a 
note  has  been  decided  both  ways.  A  negative  answer  has  generally 
been  given  by  Eastern  courts,  while  the  Western  courts  have  generally 
maintained  the  opposite  opinion.  In  a  new  law,  recently  enacted  by 
New  York,  New  Jersey,  Connecticut,  Florida  and  Colorado  relating  to 
negotiable  paper,  such  a  stipulation  does  not  impair  their  negotiability. 
A  stipulation  added  to  the  usual  form  of  note  which  is  not  to  go  into 
effect  imtil  after  its  maturity  does  not  impair  its  negotiability.  Some- 
times a  note  contains  an  additional  clause  relating  to  exchange,  thus: 


DIRECTORS  AND   LOANS,  91 

$1,000.00.  ST.  LOUIS,  Mo.,  Oct.  1,  1897. 

Sixty  days  after  date  I  promise  to  pay  to  the  order  of  John  Smith 
One  Thousand  Dollars,  payable  at  Mechanics'  Bank,  with  exchange  on 
New  York  City.    Value  received. 

JOHN  JONES. 

This  means  that  Jones  promises  to  pay  in  addition  to  $1,000  the 
cost  of  sending  that  sum  to  New  York;  in  other  words,  the  cost  of  a 
draft  on  New  Yoric  for  that  amount.  To  this  form  there  is  no  objection, 
because  the  nature  of  the  promissor's  undertaking  Is  well  understood. 

Sometimes  the  phrase  "in  exchange,"  or  "in  New  York  exchange" 
is  used  as  synonj'mous  with  the  other.  But  it  does  not  mean  the 
same  thing.  It  has  been  contended,  when  this  is  incorparated  in  a 
note,  that  the  maker  has  the  right  to  tender  a  draft  on  New  York  in 
payment.  Surely  such  a  draft  is  New 'York  exchange,  just  what  the 
maker  promised  to  pay.  Again,  New  York  exchange  varies  in  quality, 
and  if  a  draft  may  l)e  tendered,  can  he  select  the  parties  to  the  instru- 
ment, or  has  the  payee  the  sole  right  to  determine  what  New  York 
exchange  shall  be  accepted?  These  ambiguities  should  prevent  the  use 
of  this  form  among  all  Mho  seek  to  be  accurate  in  their  business 
methods. 

Another  important  principle  may  be  mentioned.  If  a  note  is  made 
in  one  state  and  payable  in  another  the  <iuestion  often  arises,  By  what 
law  shall  its  validity  be  determined?  The  question  is  of  special  im- 
portance whenever  the  rates  of  interest  vary  in  different  states.  The 
general  principle  is  that  the  validity  of  a  note  is  to  be  determined  by 
the  place  where  it  is  to  be  executed.  If  a  note  is  made  in  New  York 
payable  in  Philadelphia,  its  legality  must  be  tested  by  the  laws  of 
Pennsylvania.  With  respect  to  the  rate  of  interest  that  may  be 
exacted,  it  may  be  said  that  generally  any  rate,  lawful  either  in  the 
state  where  a  note  was  made  or  is  payable  is  legal,  but  wherever  this 
principle  does  not  apply,  the  rate  that  may  be  charged  where  the  note 
\s  to  be  paid  is  the  lawful  rate.  As  the  states  are  modifying  or  repeal- 
ing their  usury  laws  this  principle  is  less  important  than  it  once  Avas, 
though  even  now  usury  laws  in  some  modified  form  exist  in  many 
states  and  l)anks  occasionall.v  feel  their  severity. 

Another  form  of  oljligation  is  known  as  accommodation  paper.  The 
difference  between  this  and  commercial  paper  is  well  understood. 
Paper  of  the  latter  kind  grows  out  of  business  transactions,  the  sale  of 
goods  or  other  merchandise.  Accommodation  paper  is  made  without 
reference  to  any  particular  transaction,  to  raise  money  for  some  future 
use.  One  of  the  peculiarities  of  such  paper  is  that  as  between  the 
maker  and  indorser  nothing  can  be  recovered.  In  making  accommo- 
dation paper  very  often  an  agreement  exists  between  the  maker  and 
indorser  whereby  the  proceeds  are  divided  between  them;  in  all  cases 
either  the  maker  or  indorser  acts  for  the  benefit  of  the  other. 


93  PRACTICAL  BANKING. 

Bills  of  exchange  is  the  next  kind  of  paper  that  may  be  mentioned. 
In  its  original  form  a  bill  is  very  unlilie  a  promissory  note,  but  when 
indorsed  and  accepted  the  similarity  between  the  two  instruments  is 
very  great.  The  acceptor  of  the  bill  of  exchange  is  the  primary 
debtor,  like  the  maker  of  a  promissory  note;  and  the  drawer  of  a  bill 
is  the  secondary  debtor,  like  the  indorser  of  a  promissory  note. 

Very  often  bills  of  exchange  are  drawn  against  produce  or 
merchandise  consigned  for  sale.  If  accompanied  by  a  specific  pledge  of 
the  property,  they  are  called  documentary  bills,  because  the  title  Is 
authenticated  by  bills  of  lading,  and  protected  by  policies  of  insurance, 
which  accompany  the  paper.  The  merchandise  is  sold  "for  account  of 
whom  it  may  concern,"  that  is  to  say,  for  account  of  the  bill  holder 
first,  and  of  the  owner  of  the  property  afterwards.  A  very  large  part  of 
the  grain,  produce,  cotton  aud  tobacco  business  of  this  country  is  trans- 
acted by  means  of  documentary  bills.  They  have  often  little  else  than 
the  value  of  the  property  to  depend  upon,  the  drawers  and  acceptors 
being  only  middlemen,  or  factors  of  small  responsibility.  If  the  prop- 
erty is  of  a  staple  character,  always  salable  at  a  price,  and  the  advances 
are  sufficiently  below  its  value,  such  bills  make  very  desirable  paper, 
for  the  reasons  already  given  that  they  do  not  depend  on  the  solvency 
or  even  the  good  faith  of  the  parties,  the  property  itself,  authenticated 
by  its  title  deeds,  being  the  real  security.  Foreign  bankers  make  their 
profits  very  largely  in  buying  documentary  bills  at  one  rate  and  selling 
their  own  plain  bills  at  a  higher  rate;  but  it  requires  large  capital  and 
established  credit  to  make  a  market  for  bankers'  bills.  In  recent  years 
the  margin  of  profit  has  been  very  small,  and  the  liability  incurred  in 
making  it  is  immense,  as  both  the  bills  purchased  and  those  sold  have 
to  bear  the  banker's  signature.  Foreign  bills  are  not  usually  dealt  in 
by  American  bankers,  except  in  the  Southern  cities,  where  cotton  and 
tobacco  are  often  consigned  directly  to  a  foreign  market.  The  same 
is  probably  true  to  some  extent  in  the  grain-handling  cities  of  the 
West  and  in  California.  It  hardly  pays  to  discount  foreign  bills  and 
send  them  abroad  for  collection  and  remittances  of  proceeds.  To  deal 
profitably  in  them,  a  bank  must  draw  exchange,  as  well  as  buy  it,  and 
the  business  of  drawing  is  almost  exclusively  in  the  hands  of  private 
bankers,  and  of  the  representatives  of  European  or  Canadian  banks.  It 
has  always  been  a  surprise  to  many  that  some  of  the  larger  New 
York  banks  have  never  competed  for  this  business.  They  possess  in  a 
high  degree  the  most  important  qualifications  necessary  to  a  good 
drawer  of  exchange.  They  have  an  adequate  known  capital,  make  and 
publish  periodical  reports,  are  examined  by  official  experts,  and  are 
conservatively  managed  by  officers  and  directors  conspicuous  for  their 
wealth,  experience  and  probity.  Some  of  them  have  existed  for  a 
long  time,  and  liave  ac(iuired  that  widespread  reputation  which  is  a 
first  requisite  in  a  drawer  of  foreign  bills.  Such  a  participation  in 
foreign  business  on  the  part  of  the  incorporated  banks  would  have  this 


DIRECTORS   AXD   LOANS.  93 

further  advantage,  that  the  banking  of  this  country  would  be  thus 
allied  more  closely  with  the  banking  and  financial  operations  of  the 
rest  of  the  world.  At  present  there  is  too  great  ignorance  of,  and  too 
little  regard  paid  to  what  is  going  on  in  the  monetarj'  world  abroad. 
It  is  not  considered  a  necessary  part  of  an  American  banker's  edu- 
cation to  study  foreign  banking  and  finance,  and,  as  a  consequence,  all 
the  profit  which  the  banlving  business  should  properly  derive  from 
foreign  commerce,  is  turned  over  to  private  individuals,  largely 
foreigners,  or  to  the  representatives  of^more  sagacious  and  cosmopol- 
itan institutions.  One  obstacle  to  engaging  in  foreign  banking,  by  the 
incorporated  banks,  is  the  great  subdivision  of  capital,  and  the  small- 
ness  of  the  amount  controlled  by  any  one  institution. 

Drafts  drawn  on  actual  merchandise  are  usually  regai'ded  as  very- 
desirable  paper  for  a  bank  to  take.  It  not  only  has  the  names  of 
the  drawer  and  drawee,  but  the  additional  security  of  the  merchandise 
specified  in  the  bill  of  lading  as  security.  A  man  in  Chicago  purchases 
whtat  for  a  merchant  living  in  New  York.  Having  no  money  to  pay 
foi-  it,  he  draws  a  sight  draft  on  the  merchant  in  New  York  to  whom 
the  wheat  has  been  consigned  and  appends  thereto  a  bill  of  lading 
from  the  ti*ansportatiou  company  that  is  to  convey  it  to  New  York, 
specifying  the  amount  of  wheat  that  is  to  be  transported  and  the  name 
of  the  consignee.  Or,  the  wheat  may  be  in  an  elevator  and  a  certifi- 
cate of  ownership  is  given  by  the  elevator  company  and  this  is  ap- 
pended to  the  draft.  Fortified  with  this  bill  of  lading  he  takes  his  draft 
to  a  bank  and  calls  for  the  money,  and  on  receiving  it  pays  it  over  to 
the  seller.  The  legal  title  of  the  wheat  is,  in  law,  in  the  purchaser, 
but  the  equitable  title,  by  which  is  meant  the  real,  just  title,  is  immedi- 
ately vested  in  the  bank  that  has  furnished  him  the  money  to  pay  for  the 
wheat.  Now  the  wheat  starts  on  its  journey  eastward.  The  wheat 
still  remains  the  property  of  the  bank  though  it  has  never  been  the 
actual  possessor.  It  could  stop  the  wheat  in  transit  for  any  good 
reason.  Suppose  that  before  reaching  New  York  the  drawee  of  the 
draft  should  fail.  The  bank  could  immediately  stop  tlie  transit  of  the 
wheat,  store  it  on  its  own  account,  and  indeed  sell  it.  Or,  if  it  reached 
New  York  the  bank  could  direct  that  delivery  should  not  be  made  to 
the  consignee  or  drawee  of  the  draft,  and  hold  it  subject  to  its  own 
order.  If,  however,  the  wheat  was  delivered  to  the  consignee,  the 
bank's  ownership  or  lien  would  be  gone,  and  it  would  have  to  proceed 
like  any  other  creditor  to  get  its  money  advanced  on  the  draft. 

Some  difficult  questions  have  arisen  in  collecting  drafts  accom- 
panied with  bills  of  lading  concerning  the  length  of  time  for  which  the 
merchandise  thus  pledged  can  be  retained.  With  respect  to  sight  drafts 
the  usage  is  well  understood,  the  merchandise  shoidd  not  be  delivered 
tmtil  they  are  paid,  but  when  drafts  are  drawn  on  time,  the  usage 
varies  iu  different  states.  More  generally  tlie  merchandise  must  be 
surrendered  on  acceptance  of  the  drafts.    The  rules  given  by  Daniel, 


94  PRACTICAL  BANKING. 

the  eminent  author  of  Negotiable  Instruments,  are  more  concise  than 
any  other  exposition  of  which  we  have  any  linowledge,  and  are  sub- 
stantially the  following:  First,  Tlie  indorsee  of  a  bill  of  lading 
attached  to  a  draft  which  he  acquires  on  the  faith  and  credit  of  the 
bill  of  lading  takes  it  subject  to  the  agreement  between  the  consignor 
and  consignee  of  the  goods.  If,  therefore,  the  consignor  had  the  right 
to  Avithhold  the  bill  of  lading  until  the  draft  was  paid,  the  bona  fide 
holder  of  it  has  the  same  right. 

Second,  When  there  is  no  special  agreement,  a  bill  of  lading  accom- 
panying a  time  draft,  taken  on  the  security  of  the  goods  covered  by  the 
bill,  is  to  be  surrendered  to  the  drawee  of  the  draft  on  its  acceptance. 
And  the^  holder  cannot  retain  the  bill  of  lading  after  the  acceptance  of 
the  draft  unless  the  shipper  of  the  goods  had  a  similar  right. 

Third.  When  a  time  draft  is  drawn  on  a  shipment  accompanied 
with  a  bill  of  lading,  the  holder  cannot  (in  the  absence  of  proof  of  a 
local  usage  to  the  contrary,  or  of  the  imminent  insolvency  of  the 
drawee)  require  him  to  accept  the  draft,  except  on  the  delivery  of  the 
bill  of  lading.  And  when,  in  consequence  of  the  holder's  refusal  to 
deliver  the  bill,  the  drawee  refuses  to  accept  the  draft  and  it  is  pro- 
tested, the  protest  will  be  without  cause  and  discharges  the  drawer. 

Fourth.  The  drawee  of  a  time  draft  attaclied  to  a  bill  of  lading  is 
not  entitled  to  it,  or  to  the  property  therein  descril)ed,  without  accept- 
ing or  paying  the  draft  in  accordance  with  the  terms  of  the  agreement 
between  the  shipper  who  drew  the  draft  and  the  drawee. 

Fiftli.  A  party  discounting  a  draft  on  the  faith  of  the  indorsement 
of  a  bill  of  lading  for  goods  deliverable  to  order,  has  the  same  lien  on 
the  goods  as  he  would  acquire  if  they  were  delivered  to  him  instead  of 
the  bill  of  lading. 

Nevertheless,  as  the  courts  in  the  different  states  do  not  have  the 
same  views  concerning  a  bank's  duties  in  collecting  time  drafts  secured 
by  merchandise,  whether  it  should  be  given  up  on  their  acceptance  or 
not,  definite  instructions  should  be  demanded  before  undertaking  their 
collection.  By  following  these,  all  risks  of  violating  the  conflicting  laws 
that  now  prevail  will  be  avoided. 

Sometimes  bills  of  lading  are  forged,  and  interesting  questions  then 
arise  concerning  the  responsibility  of  the  parties  to  them.  In  one  of 
these  cases  a  bill  purporting  to  have  been  given  by  the  agent  of  a 
railway  company  at  Memphis.  It  was  a  shipping  receipt  for  cotton. 
It  was  proved  that  it  had  never  been  given,  and  the  bank  failed  to 
recover  of  the  company.* 

Another  mode  of  lending  money  is  by  an  overdraft.  A  depositor 
is  permitted  to  draw  on  his  bank  for  a  largiM-  amount  than  his  deposit. 
In  several  states  this  practice  was  once  forbidden,  and  made  a  penal 


*For  a  collection  of  cases  see  BoUes  on  Bank  collections,  148,  p.  175, 
and  an  excellent  paper  by  G.  R.  Hawes  in  American  Banker,  1899,  p.  1883. 


DIRECTORS  AND  LOANS.  95 

offense.  Of  late  years  in  some  sections  of  the  country,  especially  in  the 
South,  it  has  become  a  common  mode  of  lendiuj;  money.  Whetlier  it 
is  a  proper  thing  for  a  bank  to  do  or  not  depends  entirely  on  the  char- 
acter and  circumstances  of  the  depositor.  If  he  is  well  known  and  has 
ample  wealth  to  respond  to  his  order,  a  bank  may  be  justified  in  lending 
money  to  hiin  in  this  manner.  In  the  South,  Avhero  this  practice  is  most 
common  during  the  autumn,  the  banks  generally  have  ample  security. 

A  depositor  will  give  security  on  his  cotton  and  when  it  is  sold  pay 
his  overdraft.  In  the  meantime  the  bank  is  exacting  interest  as  It 
would  on  any  other  obligation. 

The  loans  thus  far  described  are  made  on  time,  or  for  very  short 
periods.  The  practice  of  lending  on  short  time  is  based  on  the  soundest 
experience.  Banks  now  rarely  lend  for  a  longer  period  than  four 
mouths,  though  they  have  no  hesitation  in  talking  a  note  that  runs  for 
six  months  at  the  end  of  the  second  month,  thus  having  only  four 
months  of  life  before  maturity. 

Banks,  especially  in  the  larger  cities,  make  call  loans,  a  thing  of 
modern  invention.  They  are  usually  made  to  brokers.  They  are  the 
onlj  persons  who  can  profitably  use  money  in  this  way.  and  for  specu- 
lative purposes.  It  is  true  that  other  people  sometimes  borrow  money 
on  call,  but  not  often.  A  lower  rate  generally  is  paid  on  such  loans 
than  on  loans  for  longer  periods.  Borrowers  are  thus  favored  because 
of  their  promise  to  return  the  money  whenever  it  is  demanded.  The 
banker  thinks  that  by  making  loans  of  this  kind  he  really  has  lent  his 
nu  ney  and  yet  has  it  within  his  command.  He  regards  this  as  con- 
servative banking  even  though  he  does  not  get  as  high  rate  of  interest. 

A  merchant  or  manufacturer  could  not  afford  to  borrow  money  on 
these  terms.  He  would  fear  that  the  loan  might  be  called  williout 
having  the  means  to  respond.  When  he  makes  a  loan  for  four  mouths 
or  other  period  he  expects  to  sell  goods,  or  in  some  way  confidently 
counts  on  having  money  to  pay  his  obligation  at  maturity.  Perhaps 
he  is  sure  that  it  can  be  renewed,  at  least  for  a  part  of  the  amount. 
Not  so  operates  the  bi'oker.  If  the  money  borrowed  is  called,  he 
expects  to  be  able  to  pay  by  borrowing  on  the  same  securities  from 
another  bank.  In  most  cases  he  can  readily  do  this.  Feeling  sure  of 
his  ground,  he  does  not  hesitate  to  borrow  in  this  manner.  His  securi- 
ties are  really  the  key  to  the  situation;  these  command  money. 

Nevertheless,  experience  has  often  shown  that  he  is  unable  to 
repay  his  obligations.  If  only  a  few  loans  are  called,  it  is  easy  enough 
for  borrowers  to  make  new  loans  elsewhere  and  fulfill  their  promises; 
but  occasionally  mauy  loans  are  called  at  the  same  time,  and  when  this 
happens,  the  broker's  situation  becomes  very  grave.  At  such  times  it 
is  very  difficult  for  borrowers  to  fulfill  their  obligations.  The  lending 
banks  always  have  collaterals  for  such  loans,  consisting  of  stocks 
listed  on  the  stock  market,  and  in  lending  leave  a  margin  for  shriu'^age 
iu  their  values  of  ten  per  cent,  or  more  to  secure  themselves  against 


96  PRACTICAL  BANKING. 

loss.  In  the  loan  contract  is  a  clause  providing  that,  should  the  bor- 
rower fail  to  fulfill  his  promise,  the  bank  is  authorized  to  sell  his 
security,  whatever  it  may  be,  and  apply  the  avails  iu  payment  of  his 
indebtedness. 

form  ok  stock  note. 

5 Philadelphia, 190 

after  date, promise  to  pay  to  the  order  of 

Dollars, 

without  defalcation,  for  value  received ;  and  have  delivered  with  this  note,  as  col- 
lateral security, 


and  do  agree,  on  demand,  to  deposit  with  the  holders  such  additional  security  as  they  may 
from  time  to  liiue  require,  and  in  default  thereof  this  note  shall  instantly  become  due  and 
payable  as  thoucli  i  t  had  actually  matured,  and  upon  default  of  payment  at  maturity,  whether 
such  maturity  occurs  by  expiration  of  time  or  default  in  depositing  additional  security  as 
above  agreed,  do  hereby  authorize  and  empower  the  holders  hereof  for  the  purpose  of  liquida- 
tion of  this  note,  and  all  interest  and  cost  thereon,  to  sell,  transfer,  and  deliver  the  whole  or 
any  part  of  such  security,  or  any  additions  thereto,  or  substitute  therefor  without  any  previous 
demand,  advertisement  or  notice,  either  at  brolsers'  board  or  public  or  private  sale.at  any  time 
ortimes  thereafter,  with  the  right  on  the  part  of  such  holders  to  become  the  purchaser  and 
absolute  owner  thereof,  free  of  all  trusts  and  claims.  And  it  is  further  agreed  thatthe  securi- 
ties hereby  pledged,  together  with  any  that  maybe  pledged  hereafter,  shall  be  applicable  in 
like  manner  to  secure  the  payment  of  any  pastor  of  any  future  obligations  of  the  undersigned 
held  by  the  holders  of  this  obligation,  and  allsuch  securities  in  their  hands  shall  stand  as  one 
general  containing  collateral  security  for  the  whole  of  said  obligations,  so  that  the  deficiency 
on  any  one  shall  be  made  good  from  the  collaterals  for  the  rest,  hereby  remaining  responsible 
for  any  deficiency  in  payment,  and  waiving  any  benefit,  exemption,  or  privilege  under  any  law 
now  or  hereafterto  be  in  force. 


ANOTHER   FORM   OF  STOCK  NOTE. 

5 IjEW  York, 190  — 

after  date  for  value  received, promise 

to  pay  to  The Bank  of  the  City  of  New  York, 

or  order,  at  said  bank,  — Dollars, 

having  deposited  with  said  Bank  as  collateral  security  for  payment  of  this  or  any  other  liabil- 
ity or  liabilities  of to  said  Bank,  due  or  to  become  due,  or  which  may  be  here- 
after contracted  the  following  property,  viz: 

(Description  here) 
with  full  power  and  authority  to  said  Bank  to  sell,  assign  and  deliver  the  whole,  or  any  part 
thereof,  or  any  substitutes  therefor,  or  any  additions  thereto,  at  any  Brokers"  Board,  or  at  any 
public  or  private  sale,  at  the  option  of  said  Bank,  or  its  President,  or  Cashier,  on  the  non- 
performance of  this  promise,  or  the  non-payment  of  any  of  tne  liabilities  above  mentioned,  or 
at  any  time  thereafter,  without  advertisement,  or  notice,  wliich  are  hereby  expressly  waived. 
And  after  deduiaing  all  costs  and  expenses  for  collection,  sale  and  delivery,  to  apply  the  resi- 
due of  the  proceeds  of  such  sale  or  sales,  to  pay  any  or  all  of  sail  liabilities,  to  said  Bank,  or 
its  assigns,  as  its  rresident  or  Cashier,  or  assigns,  shall  deem  proper,  returning  the  overplus  to 
the  undersigned.  And  the  undersigned  agrees  to  be  and  remain  liable  to  the  holder  hereof 
for  any  deficiency.  ..     ^v.,^^  »,.   », 

Incaseof  depreciation  in  the  market  value  of  the  security  hereby  pledged,  or  which  may 
hereafter  be  pledged  for  this  loan,  a  payment  is  to  be  madoon  account,  so  that  the  said  market 

value  shall  always  be  at  least per  cent,  more  than  the  amount  unpaid  of  this 

Note.  In  case  of  failure  to  do  so,  this  Note  shall  be  deemed  to  be  due  and  payable  forthwith, 
anything  hereinbefore  expressed  to  the  contrary  notwithstanding  and  the  Bank  may  immedi- 
ately reimburse  itself  by  sale  of  the  security. 


When  only  a  few  loans  are  called  it  is  usually  easy  enough,  if 
borrowers  cannot  pay,  for  a  bank  to  sell  their  collateral  securities 
and  apply  the  proceeds  on  their  note.s;  but  whenever  many  loans 
are  called  and  borrowers  are  unable  to  respond,  or  to  borrow  the  money 


DIRECTORS  AND   LOANS.  97 

of  Other  banks  then  there  is  trouble.  If  the  lending  banks  put  their 
securities  on  the  market  and  attempt  to  sell  them,  the  prices  immedi- 
atelj'  fall  by  virtue  of  the  operation  of  that  most  familiar  principle, 
supply  and  demand.  The  large  sudden  supply  has  the  effect  always 
of  diminishing  their  value,  and  the  sum  received  may  be  insufficient  to 
pay  the  loans  made  on  the  strength  of  them.  Banks,  seeing  the  danger 
of  a  loss,  in  many  cases  keep  their  securities  until  the  return  of  better 
times.  In  other  cases  there  is  no  alternative,  they  must  sell  whatever 
be  the  price  in  order  to  realize  money. 

If  the  securities  are  kept,  they  must  cut  off  time  loans  in  order  to 
get  a  needful  supply  of  funds.  Consequently  whenever  call  loans  are 
made  to  a  great  amount,  the  practice  results  in  sacrificing  the  com- 
meicial  class  to  save  the  brolvers,  or  in  sacrificing  the  brokers  through 
the  sudden  fall  in  the  value  of  their  securities.  Experience  therefore 
has  clearly  demonstrated  that  call  loans  are  no  safer  than  any  other, 
and  that  it  is  not  a  wise  practice  for  a  bank  to  lend  large  amounts  in 
this  manner. 

No  mention  has  yet  been  made  of  the  reasons  for  making  these 
loans.  One  of  the  principal  reasons  is  that  the  larger  portion  of  the 
money  thus  lent  consists  of  the  reserves  of  national  banks,  or  that  por- 
tion which  they  are  permitted  liy  law  to  keep  with  the  banks  in  the 
larger  cities.  When  lying  in  their  vaults  at  home,  of  course  they  cannot 
be  used,  and  therefore  during  times  of  dullness,  when  there  is  no 
possible  use  of  these  reserves,  they  are  sent  to  New  York  for  the 
purpose  of  getting  the  two  or  more  per  cent,  interest  that  is  allowed 
for  their  use.  Interest  would  not  be  paid  by  the  New  York  banks  if 
they  could  not  make  some  use  of  this  reserve  money.  What  can  they 
do  with  it?  Wishing  to  keep  it  in  hand  so  as  to  be  able  to  respond  at 
a  short  notice  to  the  sending  banks,  it  is  lent  on  call.  Our  readers  can 
now  understand  the  position  of  banks  that  receive  and  lend  such 
deposits.  They  always  exert  themselves  to  the  utmost  to  return  them 
whenever  they  are  demanded,  because  they  well  know  that  not  to  do 
this  would  mean  ruin  perhaps  to  the  sending  banks.  Every  bank  that 
holds  them  is  most  careful  to  fulfill  this  obligation.  But,  on  the  other 
hand,  to  do  so  it  is  often  otliged  to  sacrifice  either  the  commercial  class 
who  borrow  money  from  them,  or  the  brokers,  as  we  have  explained. 
There  is  no  escape  from  grinding  either  one  class  or  the  other  between 
the  millstones.  The  question  always  is.  Which  class  shall  be  sacrificed? 
As  the  national  banking  act  declares  that  the  banks  are  organized  for 
commercial  purposes,  not  to  feed  brokers,  it  would  indeed  be  well  if 
this  practice  of  making  call  loans  was  cut  up  root  and  branch;  for, 
as  we  have  seen,  it  is  by  no  means  a  safe  business,  and  every  year  or 
two  results  in  a  monetary  panic.  This  brief  analysis  of  the  mode  of 
making  call  loans,  ought  to  be  sufficient  to  show  that,  if  the  practice  was 
discontinued  or  forbidden  by  law.  unspeakably  good  results  would 
follow.    But  there  is  another  way  of  reaching  this  end,  the  practica- 

7 


98  PRACTICAL   BANKING. 

bility  of  which  no  one  will  question,  to  so  change  the  law  as  to  require 
e\er3'  banic  to  keep  its  deposits  in  its  own  vaults.  The  country  banlis 
might  be  permitted  to  reduce  them,  but  whatever  might  be  the  legal 
amount,  if  thej  were  required  to  Iceep  them  at  home,  the  New  York 
banlis  would  not  have  them,  call  loans  would  be  greatly  lessened  in 
amount,  and  the  commercial  class  would  not  be  squeezed  to  get  money 
either  to  save  the  brokers  or  the  lending  banks. 

Banks  also  lend  on  collateral  security,  bonds,  stocks  and  other 
oblig^ations.  Every  now  and  then  when  a  bank  meets  with  a  heavy  loss 
from  the  non-payment  of  ordinary  mercantile  paper,  its  president  or 
board  of  managers  thinks  that,  after  all,  such  paper  at  the  best  is  very 
insecure;  that  notwithstanding  all  inquiries  they  may  make  deception 
is  inevitable,  and  so  they  conclude  that  in  the  future  they  will  take 
less  paper  and  require  more  collateral  securities  for  their  money.  We 
might  describe  many  an  experience  of  this  kind  in  which  some  losing 
bank  suddenlj'  determines,  for  a  while  at  least,  to  reverse  its  policy 
and  discount  paper  largely  on  the  cover  of  collateral  securities.  The 
reason  for  this  change  is  that  the  bank  is  supposed  to  know  more 
concerning  their  worth  than  the  worth  of  the  makers  and  indorsers  of 
paper.  Tt  is  indeed  uot  an  unusual  thing  to  hear  some  banker  say  that 
he  cannot  be  fooled  in  taking  collateral  securities  of  stocks  and  bonds 
that  are  listed  on  the  market  and  command  a  ready  sale. 

Experience  is  the  infallible  test  in  such  matters,  and  this  has  again 
and  again  shown  that  bankers  who  proceeded  on  this  principle  were 
mistaken.  In  describing  the  difficulties  and  dangers  in  making  call 
loans,  we  remarked  that  whenever  there  was  an  unexpected  supply  of 
bonds  or  stocks  for  sale  the  market  for  them  declined  in  obedience  to 
the  general  operation  of  the  law  of  supply  and  demand.  The  situation 
at  such  times  is  intensified  by  the  fact  that  many  who  would  be  very 
willing  to  purchase  if  they  had  the  money  are  unable  to  get  it,  either 
because  the  banks  which  keep  their  deposits  cannot  pay,  or  are  unwill- 
ing, if  loans  are  desired,  to  lend  to  them.  Consequently,  those  who 
possess  means  or  credit  and  would  purchase  at  such  times  are  unable 
to  do  so,  and  their  inability  to  purchase  renders  the  situation  still 
worse,  and  unfavorably  affects  the  values  of  securities  offered  for  sale. 
So  experience  proves  that,  in  the  long  run,  the  values  of  collateral 
securities  fluctuate  very  widely,  and  the  proofs  of  this  can  readily  be 
found  in  the  record  of  prices  of  stocks  and  bonds.  A  bank  therefore 
that  determines  to  do  such  business  rather  than  trust  to  the  credit  of 
individuals  is  sure  to  be  a  loser  In  the  end.  Doubtless  many  a  loan  is 
made  to  a  person  possessing  ample  credit  outside  his  collaterals  offered 
for  security;  and  the  plain  teaching  of  experience  is  that  a  bank, 
so  far  as  possible,  should  divide  its  loans  between  commercial  paper 
and  other  paper  secured  by  collaterals.  To  combine  both  credit  and 
collaterals  is  an  ideal  security.  Furthermore,  it  is  a  good  policy  in 
banking  as  well  as  in  insurance  to  divide  loans  into  smaller  amounts 


Directors  and  loans.  9d 

rather  than  to  intrust  very  large  sums  to  the  credit  and  disposition 
of  a  few  individuals.  In  many  of  the  bank  failures  of  recent  years  a 
large  portion  of  their  resources  had  been  loaned  to  a  ring  or  even  to  a 
Singh'  individual.  Failures  have  been  far  more  frequent  among  banks 
of  this  class  than  among  those  with  loans  scattered  among  many 
borrowers.  Trudence  clearly  dictates  that  this  principle  should  be 
followed  in  lending  the  money  of  a  bank. 

Indeed,  depositors  and  business  men  of  all  kinds  would  do  well  to 
give  a  bank  a  wide  berth  that  is  organized  by  one  man  or  a  few 
men  for  a  special  purpose,  and  who  absorb  most  of  its  resources.  It 
may  be  that  this  intention  is  not  known  in  the  beginning.  They  may 
succeed  in  covering  up  their  designs  for  a  time,  but  no  bank  that  uses 
its  resources  for  the  benefit  of  a  few  can  long  keep  the  secret.  Persons 
apply  for  discounts,  and  are  refused,  they  are  prone  to  inquire  into  ihe 
reason,  and  learn  that  others  have  taken  the  money,  but  who?  The 
real  borrowers  are  found  out,  and  when  they  are,  depositors  should 
keep  away  from  such  an  institution,  for  several  excellent  reasons: 
First,  they  cannot  be  accommodated,  which  is  one  of  the  reasons  for 
making  deposits.  When  a  bank  diverts  the  money  of  depositors  Into 
a  few  channels  of  course  there  is  not  much  left  for  others.  Secondly, 
depositors  should  keep  away  because  there  is  greater  danger  that 
such  a  bank  will  fail  than  one  in  which  neither  the  president  nor 
directors  are  engaged  in -any  large  outside  enterprises  absorbing  the 
bank's  money.  A  failure  occurred  a  few  months  ago  in  Michigan  of 
a  bank  having  $225,000.00  of  deposits.  Of  this  sum,  however,  the 
president  had  borrowed  $180,000.00.  It  is  true  that  he  had  violated  the 
national  banking  law  in  conducting  the  bank,  but  it  was  another  case 
in  which  the  board  of  directors  had  been  kept  in  profound  ignorance  of 
his  operations.  He  was  the  president  of  a  large  manufacturing  concern, 
and  had  employed  most  of  the  money  of  the  bank  in  sustaining  it.  When 
he  failed,  the  bank  was  obliged  to  close  its  doors.  As  he  endeavored  to 
keep  his  concern  afloat  as  long  as  possible,  the  failure  in  the  end  was 
very  complete,  and  the  depositors  were  unable  to  save  hardly  anything 
from  the  wreck. 

The  principal  New  York  city  banks  have  the  stock  exchange  tele- 
graph quotations  in  their  banking  rooms,  and  therefore  are  promptly 
informed  concerning  the  current  fluctuations  of  the  market.  On  such 
securities,  loans  are  made  usually  within  ten  or  fifteen  per  cent,  of 
the  market  value.  The  fluctuations  in  these  stocks  thus  pledged  are 
carefully  watched  by  a  person  in  the  bank,  especially  appointed  for 
that  purpose.  It  is  his  duty  to  demand  either  more  security,  or  the 
payment  of  a  part  of  a  loan,  in  the  event  of  a  decline  in  the  value  of  the 
security  pledged  therefor. 

In  some  states,  though  the  rule  is  not  uniform,  the  law  requires 
that  for  a  collateral  to  be  good  security  when  delivered  to  the  bank, 


100  PRACTICAL  BANKINCt. 

stock  must  be  actually  transferred  on  the  books  of  the  company  which 
first  issued  the  same. 

A  national  bank  is  forbidden  to  lend  money  on  real  estate.  It  can, 
however,  take  it  afterward  to  secure  a  loan  and  escape  loss.  It  has 
sometimes  been  questioned  whether  banks  do  not  practically  violate 
the  law  that  lend  without  taking  any  security  in  the  beginning,  and 
soon  afterward  obtain  a  mortgage  on  the  maker's  real  estate.  The 
difficulty  in  procuring  proof  of  the  true  nature  of  the  transaction  is 
apparent,  but  the  law  might  be  changed  and  every  transaction  of  the 
kind  be  regarded  as  a  violation  until  it  was  satisfactorily  explained. 

By  the  national  banking  law  a  bank  is  also  forbidden  to  take  its 
stock  as  collateral  security.  In  the  olden  times  this  was  a  favorite 
method  of  bori'owing.  Banks  were  organized  as  we  have  already 
shown  without  any  real  capital.  It  is  said,  however,  that  this  principle 
of  the  law  can  be  evaded  by  borrowing  of  another  bank  and  giving  the 
stock  as  security.  In  Canada,  the  law  prohibiting  loans  on  bank  stock 
is  evaded  in  three  ways.  An  intermedial  y  is  used  to  effect  the  evasion. 
He  is  an  individual  trustee,  an  old  established  company,  or  a  company 
formed  for  the  purpose.  A  writer  has  remarked  that  it  may  be  a  ques- 
tion whether  these  foims  of  evasion  are  less  Dbjeotiouable  than  the 
direct  method.  They  all  purport  to  offer  security  to  the  bank.  "The 
security  of  an  individual  is  likely  to  be  weakest,  inasii"»uch  as  individual 
capital  is  weaker  than  associated  capital.  There  may  be  no  real  inten- 
tion of  holding  an  individual  intermediary  to  any  accountability  in  the 
transaction,  and  as  he  is  really  the  agent  of  the  bank,  there  is  no  reason 
to  suppose  that  there  is  any  such  intention.  The  value  of  the  inter- 
vention of  the  company  depends  on  its  capital  and  its  strength,  and 
whether  it  is  merely  used  as  a  convenience  or  is  intended  to  be  held 
accountable  for  any  loss  that  may  occur.  In  no  other  way  does  this 
detour  modify  the  transaction.  The  ground  fact  that  the  bank  really 
advances  the  loan,  remains,  and  in  that  fact  are  summed  up  all  the 
objections  to  the  loan  by  banks  on  the  pledge  of  bank  stock." 

Besides  loans  made  on  stock  and  bond  collaterals,  are  others  on 
property  consigned  for  sale,  but  withheld  from  market  for  a  better 
price.  Such  withholding  is,  of  course,  speculative,  and  the  loans  are 
more  or  less  tainted  with  that  quality.  They  are  not  always  to  be 
condemned,  but  they  should  be  made  Avith  great  caution,  and  not  relied 
upon  to  meet  the  bank's  immediate  li'abilities.  Enough  available  means 
should  always  be  held  in  cash,  and  in  perfectly  reliable  short  paper, 
certain  to  l)e  paid  at  maturity,  to  cover  circulation  and  deposits.  Cap- 
ital and  surplus,  when  not  absorbed  in  government  bonds  (as  is  largely 
the  case  with  that  of  the  national  banks),  may  be  lent  on  longer  and 
less  convertible  security.  Convertibility,  however,  is  the  first  requisite 
in  the  collaterals  to  a  loan. 

The  moment  such  collaterals  are  inadequate  to  protect  the  loan  by 
a  forced   sale,   the  debt   becomes  unsafe.    The  objection   to  loans  on 


DIRECTORS  AND   LOANS.  101 

property  not  sold,  or  consigned  for  sale,  is  tliat  they  have  no  natural 
maturity,  and  however  ample  the  collaterals,  they  are  essentially 
accommodation  loans,  and  have  often  to  be  inconveniently  prolonged. 
The  test  of  soundness  in  a  bank  is  the  speed  with  which  it  could  liqui- 
date, and  return  its  capital  to  stockholders. 

Commonest  among  objectionable  loans  are  those  on  personal 
security,  and  accommodation  paper  without  collaterals;  such  as  is  not 
the  outgrowth  of  any  business  transaction,  out  of  the  completion  and 
fruition  of  which  the  means  of  payment  will  be  derived.  Loans  made 
for  the  purchase  or  improvement  of  real  estate,  whether  productive  or 
speculative;  loans  to  provide  quick  capital  for  corporations,  or  for  indi- 
vidual business  are  not  only  very  objectionable,  but  unfortunately  also 
very  common.  However  strongly  fortified  by  names,  they  are  always 
reluctantly  paid,  and  often  the  cause  of  anxiety  and  trouble.  It  is 
entirely  outside  of  the  province  of  legitimate  banking  to  furnish  money 
for  such  purposes.  Investments  should  be  the  result  of  savings,  and 
it  is  very  unwise,  either  for  an  individual  to  anticipate  his  savings  by 
loans  at  short  maturity,  or  for  a  bank  to  help  him  to  do  so.  So  of  quick 
capital.  We  have  shown  that  all  business  requires  it,  and  it  should  be 
greater  or  less  according  to  the  business.  It  is  the  margin  which  pro- 
tects from  disaster,  and  guarantees  success.  It  is  no  pax't  of  a  bank's 
business  to  lend  that  margin.  By  so  doing,  it  takes  on  itself  the  risk 
which  belongs  to  the  customer,  and  which  is  the  strongest  incentive  to 
prudence.  Its  duty  to  him,  and  its  proper  relation  to  his  business,  begin 
and  end  with  turning  his  products  into  cash,  as  soon  as  they  are  sold— 
converting  his  credit  sales  into  cash  sales,  and  thus  reducing  the 
necesary  amount  of  his  floating  capital  or  margin,  without  assuming  to 
provide  that  margin. 

SECTION  3. 

DISCOUNTING  CONTINUED.— STATEMENTS. 

Such  are  the  different  forms  of  obligation  taken  and  securities 
accepted  by  banks  when  lending  money.  A  question  of  no  slight  im- 
portance relates  to  the  different  classes  to  whom  money  shall  be 
loaned.  What  classes  of  applicants  are  entitled  to  the  most,  and  what 
classes  to  the  least  consideration?  First,  a  bank  should  put  at  the  top 
of  the  list  the  depositors  who  keep  the  largest  regular  balances;  in 
other  words,  its  best  customers.  Little  need  be  said  in  explanation  of 
a  principle,  the  wisdom  of  which  is  so  obvious.  As  the  prosperity  of  a 
bank  is  dependent  on  retaining  its  best  customers,  it  knows  enough  to 
reciprocate  by  lending  to  them  most  freely. 

If  they  do  not  absorb  all  the  funds  of  a  bank,  then  borrowers 
keeping  less  valuable  accounts  are  to  be  considered.  As  they  are  a 
less  important  class  compared  with  the  other,  they  must  be  refused, 
if  any  are,  instead  of  members  of  the  other. 


102  PRACTICAL  BANKING. 

The  amount  that  should  be  lent  to  any  applicant  of  course  cannot 
be  determined  hy  any  rule  or  principle.  The  national  bauliing  law- 
prescribes  a  maximum  amount  that  can  be  lent  to  any  person,  ten  per 
cent,  of  the  capital  of  a  banli.  This  provision  has  been  -wisely  adopted 
by  many  of  the  states  since  the  adoption  of  the  national  baulking  law. 
This,  however,  does  not  mean  that  a  customer  of  a  banli  cannot  get 
loans  from  a  banli  of  more  than  ten  per  cent,  of  its  capital.  There  is 
no  restriction  on  the  amount  that  may  be  loaned  to  a  man  on  paper 
made  by  different  persons  that  may,  or  may  not  be  indorsed  by  the 
applicant.  Thus,  a  merchant  having  a  very  large  business  may  have 
notes  constantlj"  given  to  him  in  settlement  for  bills  of  merchandise. 
These  may  be  discounted  by  a  banlv  without  the  slightest  reference  to 
the  ten  per  cent,  rule  above  mentioned.  It  is  questionable  whether  this 
provision  of  the  law  ought  not  to  be  changed,  for,  in  one  case  at  least, 
it  was  grossly  abused,  all  the  capital  of  a  bank  and  more  besides  was 
loaned  to  the  president  and  two  directors,  engaged  in  a  joint  specula- 
tion, on  paper  made  by  their  clerljs  and  friends  and  discounted  by  the 
bank.  In  this  Avay  they  succeeded  in  wrecking  the  association  without 
technically  violating  the  law. 

Some  banks  have  a  rule  or  custom  fixing  the  line  of  discount  to 
their  directors  and  to  well  known  customers,  $10,000.00,  .$2."),000.00.  or 
more,  as  the  case  may  be.  In  such  cases  the  borrowers  are  supposed  to 
possess  ample  means,  but  when  the  gilt-edged  class  is  passed  it  is  dilfi- 
cult  to  fix  the  limit  to  loans  granted  to  others  who  are  less  responsible. 
Some  banks  make  a  rule  of  lending  depositors  who  wish  to  borrow  in 
proportion  to  the  amount  of  their  average  balances.  For  example,  a 
dealer  whose  general  average  balance  is  $15,000.00  Avould  be  entitled 
to  accommodation  five  times  greater  than  a  dealer  with  an  average 
balance  of  $3,000.00.  Hence  a  correctly  kept  Average  Book  is  an 
important  guide  in  granting  discounts.  But  this  rule  from  the  varying 
circumstances  of  customers  cannot  always  be  observed.  Good  banking 
requires  a  bank  to  be  in  a  condition  to  meet  every  dealer's  reasonable 
needs  in  proportion  to  his  balances,  irrespective  of  the  current  condi- 
tion of  the  money  market. 

Prudence  requires  banks  to  lend  to  their  customers  less  at  some 
times  than  at  others.  It  may  be  that  a  loan  is  most  needed  when  a 
bank  would  be  least  justified  in  granting  it.  Thus,  during  a  time  of 
depression,  when  one's  business  is  shrinking,  customers  failing  and 
profits  smaller  than  ever,  the  question  always  becomes  a  very  serious 
one  with  the  bank.  Shall  we  continue  to  grant  our  usual  accommodation 
to  our  customers?  To  diminish  tlie  amount  at  such  a  time  may  seri- 
ously cripple  him;  to  grant  it  is  to  incur  a  risk  that  Avould  not  be 
undertaken  for  a  moment  for  a  new  customer. 

Of  late  years  much  has  been  heard  concerning  a  lack  of  money 
in  some  quarters.  Rightly  consider(>d  money  was  never  so  plenty  as 
during  this  long  period  of  depression.    Yet  there  has  been  trouble  in 


DIRECTORS   AND   LOANS.  103 

gottiug  it,  and  Avhy?  Because  with  shriuliing  business  producers  could 
not  sell  their  merchandise  or  grain,  or  not  at  the  old  figures,  for  there 
were  no  purchasers  willing  to  pay  as  much.  In  one  sense  it  is  true 
that  producers  were  without  money  and  could  not  get  it;  they  could  not 
for  the  reason  that  they  liad  nothing  to  sell  that  was  marketable.  If 
they  had  had,  they  Avould  have  been  just  as  readily  accommodated  as 
at  any  other  time.  Banlcs  were  afraid  to  lend  to  them,  because  they 
distrusted  not  their  good  intention,  but  their  ability  to  pay. 

What  a  bank  should  do  on  such  occasions  cannot  possibly  be  fore- 
told by  any  person.  It  must  seriously  consider  the  condition  of  the 
borrower,  his  probable  ability  to  pay  and  also  the  effect  of  denying  him 
his  usual  accommodations.  A  bank  should  be,  and  doul>tless  is  slow 
to  sacrifice  a  borrower  whenever  it  is  believed  that  by  prudent  manage- 
ment he  can  weather  the  storm  and  pay  his  obligations.  It  is  true  that 
the  practice  of  banks  is  very  different  in  this  regard.  Some  are  cold- 
blooded and  do  not  hesitate  to  cut  a  customer  off  and  strand  him, 
when  he  could  be  saved  by  granting  fresh  assistance.  Sometimes  a 
bank,  unable  to  secure  its  loans,  or  to  obtain  payment  of  them,  lends 
still  more,  hoping  by  such  a  course  to  avert  loss  in  the  end.  An  old 
customer  who  has  always  paid  his  loans  and  who  expects  his  usujii 
accommodations  to  be  continued  should  be  treated  most  considerately 
during  any  crisis  in  his  affairs.  A  bank  should  not  lightly  cut  him  off 
and  suffer  him  to  perish.  In  one  sense,  a  bank  is  a  partner  with  every 
person  to  whom  it  lends  its  money,  and  having  once  established  this 
relation,  it  should  be  slow,  without  a  good  reason,  to  discontinue  it 
should  the  borrower  be  likely  to  suffer  from  the  dissolution. 

And  thus  we  are  brought  to  the  heart  of  the  most  important  thing 
in  lending  money,  namely,  that  the  relation  between  borrower  and 
lender  should  be  one  of  trust  and  confidence,  the  applicant  making  a 
full  and  truthful  statement  of  his  affairs,  or  whenever  it  is  desired,  and 
expecting,  if  this  relation  is  once  created,  that  it  will  be  continued  so 
long  as  assistance  is  desired  and  his  affairs  warrant  its  continuance  and 
the  bank  has  the  means  to  lend.  This  is  often  not  the  relation  existing 
to-day,  and  the  lack  of  its  existence  surrounds  the  lending  of  money  by 
banking  institutions  Avith  more  uncertainty  than  at  any  former  period. 
Not  until  this  trustful  relation,  growing  out  of  a  correct  knowledge  of 
a  borrower's  condition,  is  established,  will  the  lending  of  money  be 
other  than  a  hazardous  undertaking.  Therefore,  if  a  borrower  expects 
his  l)ank  to  stand  l)y  him,  he  should  ever  remember  as  the  indispensable 
condition  of  doing  so,  a  full  and  truthful  disclosure  of  his  business  to 
his  bank  whenever  required.  Toward  this  goal  both  banks  and  their 
customers  should  move,  assured  that  by  creating  and  preserving  this 
trustful  relationship,  founded  on  truthfulness,  both  will  be  great 
gainers. 

The  remarks  of  Mr.  Ceorge  Kae.  justly  eminent  for  his  excellent 
work,  The  Country  Banker,  the  fruit  of  his  long  and  successful  experi- 


104  PRACTICAL   BANKING. 

ence  as  a  banker,  should  be  read  over  and  over  by  every  bank  borrower. 
For  of  this  he  may  be  assured,  that  not  until  he  is  willing  to  treat  his 
banker  honestly,  and  disclose  his  business  fully  to  him,  his  methods, 
plans  and  expectations,  should  he  expect  that  much  interest  will  be 
taken  in  his  success,  for  he  remains  until  he  does  thus  treat  him,  by  ' 
virtue  of  his  own  choice,  an  unknown,  shadowy  figure  flitting  in  and 
out  for  accommodations.  How  can  he  reasonably  expect  his  bank  to  be 
much  iuterested  in  his  affairs,  so  long  as  they  are  not  known,  or  come 
to  his  rescue  on  the  unwelcome  discovery  that  he  is  nearing  the 
breakers. 

"The  solid  man  of  business,"  says  Mr.  Rae,  "who  from  pride  or 
prejudice,  hesitates  to  disclose  the  position  of  his  business  affairs  to  the 
confidential  ears  of  his  bankers,  damnifies  himself  in  two  ways:  on  the 
one  hand,  he  lessens  the  full  measure  of  credit  which  he  might  obtain 
from  them  should  he  ever  desire  to  borrow;  on  the  other,  he  fails  to 
furnish  them  with  data  whereon  to  speak  of  his  position,  with 
knowledge  and  decision,  in  reply  to  enquiries  from  without.  A  man 
lays  bare  the  secrets  of  his  constitution  with  candor  to  his  physician, 
lest  in  the  absence  of  an  exact  knowledge  of  the  case,  inapt  rem- 
edies might  be  applied.  For  a  like  reason,  a  man  should  be  equally 
frank  with  his  banker;  otherwise,  in  the  absence  of  a  complete  knowl- 
edge of  his  position,  you  may  ply  him  with  stimulants,  when  purging 
would  be  better;  or  bleed  him  to  commercial  death,  when  a  timely  stim- 
ulant might  save  his  existence. 

"There  are  those,  no  doubt,  who  have  potential  reasons  for  keeping 
the  condition  of  their  affairs  a  sealed  book  from  their  bankers;  but 
it  would  be  unsafe  nevertheless  to  assume,  in  every  case,  that  because 
a  man  refuses  to  show  you  his  balance-sheet,  he  is  therefore  in  a  bad 
way.  There  are  people  of  secretive  habits,  who  would  regard  with 
dread  the  possibility  of  even  their  bankers  getting  to  know,  not  how 
poor,  but  how  rich  they  are.  But  the  persons  who  take  this  peculiar 
view  of  things  are  few  in  number.  Men  in  large  and  active  business, 
and  requiring  at  times  large  banking  facilities,  see  the  wisdom  of 
laying  of  their  own  accord  their  actual  position  before  their  bankers, 
and  having  a  friendly  talk  over  the  figures.  Every  man  should  know 
that  by  this  course  he  secures  to  himself  in  times  of  pressure  and  panic 
a  large  measure  of  help,  should  he  require  it,  than  if  his  capital, 
however  ample  it  might  be,  were  still  unknown  quantity  to  his  bankers. 

"If  it  is  asked  on  what  ground  we  claim  for  banks  this  intimate 
and  exceptional  knowledge  of  other  people's  affairs,  it  might  be  suf- 
ficient to  reply  that  we  make  no  exclusive  claim  to  the  information. 
We  seek  it  for  ourselves,  it  is  true,  but  we  have  no  desire  that  it  should 
be  withheld  from  everybody  else,  nor  from  a  single  person  who  has  a 
right  to  know  it.  The  information  thus  acquired  you  have  constantly 
to  impart  in  confidence  to  other  banks,  for  the  guidance  of  their  cus- 
tomers and  themselves.    A  banker's  opinion  of  people,  in  business  or 


DIRECTORS   AND   LOANS.  105 

out  of  it.  is  in  daily  and  universal  request  throughout  the  land;  and  as 
the  reliance  placed  upon  that  opinion  is  well-nigh  absolute,  it  had 
needs  be  sound.  It  is  always  as  sound  as  the  banker  can  make  it,  but 
not  always  as  reliable  as  he  could  wish  it  to  be." 

In  the  absence  of  such  a  relationship,  what  can  a  bank  do  in  the 
way  of  acquiring  a  more  accurate  knowledge  of  the  condition  of  lend- 
ers? How  can  it  find  out  what  a  borrower  is  really  worth?  the  nature 
and  profits  of  his  business?  his  ability  and  honesty?  and  his 
prospects  viewed  with  relation  to  competitors  and  his  surroundings 
generally?  A  correct  answer  to  these  questions  would  be  of  great 
worth  to  any  banker. 

At  the  outset,  the  persons  who  apply  for  money  may  be  divided 
into  two  classes,  those  whose  ability  and  wealth,  etc.,  are  well  known 
and  concerning  whom  no  questions  are  ever  asked.  A  banic  is  always 
willing  to  lend  to  them  on  the  most  favorable  terms.  The  second  class 
are  the  persons  concerning  whom  more  information  is  desired  than  is 
often  obtained.  How  can  a  banlv  proceed  in  getting  information  con- 
cerning tliem?  First,  it  is  proper  that  a  bank  should  request  a  state- 
ment in  detail  of  the  affairs  of  a  borrower— tlie  amount  of  his  wealth, 
how  it  is  invested,  how  much  he  owes  and  who  are  the  lenders.  It 
is  true  that  a  statement  is  often  not  requested,  partly  because  of  the 
difficulty  in  making  it,  and  partly  because  banks  are  so  eager  to  lend 
money  that  they  do  not  take  this  precaution.  The  experience  of  banks 
in  lending  should  teach  them  by  this  time  thjit  they  ought  to  make 
more  careful  inquiry  than  they  have  done  into  the  matters  above 
mentioned.  One  way  of  solving  this  problem  is  to  lend  on  collaterals, 
but  experience  proves  that  banks  are  no  safer  which  attempt  to  do  that 
kind  of  business  than  those  which  lend  on  personal  credit. 

To  return  to  our  discussion  of  requiring  a  statement.  Is  not  the 
request  for  such  information  proper,  and  ought  not  a  borrower  to 
furnish  it?  If  banks  generally  requested  their  borrowers  to  furnish 
it,  they  would  soon  come  to  regard  it  as  perfectly  reasonable  and  be 
prepared.  And  why  should  they  not?  A  baulv  becomes,  as  we  have 
remarked,  a  kind  of  partner  with  its  borrower,  and  therefoi'e  it  ought 
to  know  about  his  business,  his  ability,  his  indebtedness  and  his  profits. 
Surely  no  man  would  think  of  entering  into  partnership  with  another 
without  making  inquiries  of  this  nature.  Of  coxirse,  if  a  bank  is  willing 
to  lend  Avithout  m.aklng  inquiries,  borrowers  will  not  be  inclined  to 
advance  such  information;  but  this  should  not  be.  Banks  should 
insist  on  having  this  as  a  prerequisite,  and  In  great  detail.  Further- 
more, the  law,  if  not  sufficiently  clear,  ought  to  be  made  so,  and  any 
departure  from  the  truth  in  such  a  statement  should  be  regarded  as  a 
fraud  and  criminal  offense.  Sometimes  such  statements  have  been 
required  luider  oath,  and  whenever  they  are  thus  made,  the  makers 
can  be  held  clearly  for  fraud  if  in  fact  they  were  fraudulently  prepared 


106  PRACTICAL   BANKING. 

and  with  the  intention  of  deceiving  those  who  took  them  and  acted  on 
them. 

It  might  be  difficult  to  prepare  a  statement  showing  in  detail  the 
nature  and  profits  of  one's  business,  but  an  applicant  for  a  loan  should 
remember  the  risk  that  a  banl^  talces  and  seeli  to  comply  with  the 
request.  Concerning  his  ability,  a  l)anlv  would  be  obliged  to  depend  on 
other  sources  rather  than  on  the  applicant  himself  for  an  answer, 
except  as  a  disclosure  of  his  business  furnished  proof  of  his  capacity 
and  honesty  in  conducting  it. 

Suppose,  for  example,  that  a  banli  should  insist,  among  other  things, 
on  Ivuowiug  the  amount  of  money  borrowed  by  the  applicant  and  the 
names  of  the  lenders?  He  might  say  in  reply  that  he  had  outstanding 
a  given  amount  of  paper,  but  did  not  know  Avho  the  holders  were,  and 
this  might  be  a  correct  answer.  On  the  other  hand,  if  the  practice  of 
making  such  statements  became  general,  and  he  knew  that  it  would  be 
asked,  he  would  take  more  pains  to  retain  a  knowledge  of  the  ownership 
of  his  paper  and  thus  be  able  to  answer  it.  Now  the  importance  of  this 
inquiry  will  be  manifest  from  the  further  consideration,  tliat  banks  ought 
to  co-operate  in  verifying  statements  and  of  learning  whether  they  are 
true.  Various  plans  have  been  suggested  of  bank  co-operation  in  lending 
money.  One  of  the  most  experienced  bank  presidents  in  this  country 
once  suggested  the  keeping  of  a  register  at  the  clearing  house  of  every 
city  in  which  the  banks  should  record  the  names  and  amounts  of  paper 
discounted  by  them.  The  oi)jection  to  this  practice  is  obvious,  that 
banks  Avould  not  always  do  this,  and  so  it  might  be  the  means  of 
deceiving,  as  well  as  of  giving  light.  If  banks  were  to  do  this  generally 
and  conscientiously,  it  would  furnish  a  valuable  source  of  information; 
and  even  if  they  did,  it  would  by  no  means  tell  the  whole  story,  for 
borrowers  might  make  loans  in  other  cities,  or  among  individuals,  that 
would  never  come  to  light  in  any  register  or  book  kept  for  that  purpose. 

Notwithstanding  these  objections  to  any  plan  of  co-operation,  it  is 
evident  that  banks  can  do  much  by  action  among  themselves  that  may 
be  wholly  unknown  to  the  outside  world.  There  are  many  banks  that 
have  the  utmost  confidence  in  each  other,  and  if  they  adopted  the  prac- 
tice of  making  inquiries  they  might  learn  much.  Suppose  an  applicant 
should  make  a  statement  to  the  Arctic  National  Bank  of  New  York, 
for  example,  that  he  had  $50,000.00  of  paper  outstanding,  consisting  of 
ten  notes  of  $5,000.00  each,  and  that  were  held  by  banks  In  various 
specified  places.  Suppose  the  Arctic  Bank,  without  saying  anything  to 
him  concerning  its  purpose,  should  write  to  those  banks  and  find  out 
whether  l)is  statement  were  true,  or  still  further,  suppose  they  vrere 
requested  to  inquire  of  other  banks  whether  they  held  any  paper  made 
by  this  ap])licant.  If  this  practice  were  adopted,  borrowers  not  know- 
ing how  many  banks  were  thus  associated  or  how  far  their  reJatlons 
extended,  and  knowing  also  of  the  danger  to  tlielr  credit  of  making 
wrong  statements,  would  be  less  inclined  to  deceive  those  to  whom 


DIRECTORS  AND   LOANS.  107 

applications  for  moLey  were  made.  It  is  true  they  might  borrow 
from  sources  that  were  never  likely  to  be  disclosed,  of  their 
brothers  and  sisters  and  other  individuals,  but  we  think  our  remark 
will  be  understoood  that  it  is  feasible  enough  for  banks  to  adopt  such 
a  practice,  and  the  more  general  it  became,  the  more  completely  would 
applicants  be  cut  off  from  their  old  fashioned  methods  of  deception. 
Would  it  not  be  a  comparatively  easy  thing  for  a  bank  to  establish 
such  a  relation  with  many  of  its  correspondents;  to  have  lists  of  the 
paper  discounted  by  a  bank  in  Chicago  or  persons  living  in  New  York 
sent  regularly  to  its  corresponding  bank  in  that  city?  In  like  manner 
the  New  York  bank  could  send  to  its  Chicago  correspondent  a  list  of 
paper  held  by  it  made  by  persons  living  in  Chicago.  Again,  some  if 
not  all  the  banks  in  Chicago  might,  as  occasion  required,  make  inquiries 
of  each  other  and  determine  to  whom  they  would  lend,  and  in  this  Avay 
greatly  assist  each  other. 

But  it  will  be  said  that  competition,  rivalry,  distrust,  would  forbid 
banks  from  doing  these  things.  To  some  degree  this  objection  is  true. 
Banks  must  judge  for  themselves  which  of  their  number  they  can  trust, 
whether  they  are  likelj-  to  be  deceived  or  not  by  putting  the  system 
in  operation.  Nevertheless,  the  suggestion  is  worthy  of  consideration, 
and  might  prove  helpful  to  banks  in  lessening  the  losses  that  are  now 
so  common  and  so  greatlj"  diminish  their  profits.  There  are  two 
reasons  that  work  against  the  practice  of  making  requests  for  state- 
ments, the  abundance  of  loanable  capital  held  by  the  banks  and  by 
borrowers  themselves.  The  great  increase  in  deposits  and  in  share- 
holder's capital  stimulates  competition  among  lenders  to  put  out  their 
resources,  and  to  that  end  to  make  fewer  inquiries  of  borrowers.  If 
it  had  the  effect  of  lessening  the  rate  of  interest,  no  harm  would  be 
done,  but  the  consequences  are  calamitous  when  capital  becomes  so 
abundant  that  it  is  lent  carelessly  on  insufficient  security,  to  illegitimate 
speculations;  in  short,  in  other  ways  than  in  production  and  exchange, 
A\  ithout  raakiug  proper  inquiry  into  the  ability  of  borrowers  to  repay. 

Concei'ning  the  form  of  the  statement,  no  form  can  be  prepared  that 
will  serve  in  all  cases.  We  append  a  form  used  by  the  Fourth  National 
Bank  of  New  York. 

SHORT    FORM    OF   STATEMENT   FOR  A   FIRM   ASKING   CREDIT. 

To  the  FOURTH  NATIONAL  BANK,  of  the  City  of  New  York. 

Firm  Name Business , 

Address   

For  the  purpose  of  procuring  credit  with  the  above  bank  for  our  negotiable  paper, 
we  furnish  the  following  as  being  a  fair  and  accurate  statement  of  our  financial  condition 
on  the day  of 190 


108 


PRACTICAL  BANKING. 


SHORT  FORM  OF  STATEMENT — Continued. 


Cash  

Bills  Receivable,  Good 

Accounts  Receivable, Good. . 
Merchandise(Howvalued). . 
Real  Estate  in  nameof  Firm 
Machinery  and  Fixtures 

o  •  r 


O     I. 


Total 


LIABILITIES. 


Bills  payable  for  Mdse 

Bills  payable  to  banks  ..-. . . . 

Open  Accounts 

Xoans  or  Deposits 

Mtgs.  or  liens  on  real  estate 
m  r 


4j        C   , 


5^ 
o 


Total  Liabilities. 
Net  Worth 


State  last  date  of  taking  trial  balance  proof 
Regular  time  of  balancing  books 


Names  of  all  General  Partners. 


Names  of  Special  Partners  with  amounts 
contributed  by  each  and  until  when 

Memorandum 


Please  Sign  here. 


By. 


THE    FOLLOWING    IS   A   MORE   DETAILED   FORM    CF   STATEMENT: 

To  the Bank  of 

Corporate  or  Firm  Name 

Location 

Business 

Branches,  if  any 

For  the  purpose  of  procuring  credit  with  the  above  bank  for  our  negotiable  paper,  we 

furnish  the  following  statement  of  our  financial  condition  on  the day  of 

,190.... 

The  Trial  Balance  of  our  books  is  as  follows: 


Cash  on  hand  and  in  bank 

Bills  receivable 

Accounts  receivable 

Merchandise  in  hands  of 
Consignees $ 

Merchandise  finished,  on 

hand $ 

(how  valued        ) 

Merchandise    unfinished, 

on  hand $ 

(how  valued        ) 

Raw  Material 

Real  Estate  in  name  of  Co.    or 
Firm 

(Cost  of  above,  $ 

Present  market  value,  $  ) 

Machinery  and  F'ixtures   (not  in- 
cluded in  Real  ICstate) 

Office  Furniture  and  Fixtures  (not 
included  in  Real  Estate) 

Other  Assets  (state  in  detail.) 


Specify  any  of  above  Assets  pledg- 
ed as  collateral. 


LIABILITIES. 


Capital $ 

Surplus,     or     Profit     and 
I.oss f 

Bills  payable,  for  merch- 
andise  $ 

Bills  payable   to  own 
banks $ 

Bills   payable    for   paper 
sold $ 

Open  Accounts 

Loans  or  Deposits . . . . 

Bonded    Debt.      iDate   of    Matu- 
rity, ) 

Mortgages  or  Lieus  on  Real  Es- 
tate  

Chattel  Mortgages 

Other  Liabilities  (state  in  detail.) 


Specify  any  of  above  Liabilities 
secured  by  collateral. 


DIRECTORS  AND  LOANS. 


1U9 


Capital  and  Surplus,  as  shown  by  Trial  Balance I 

Add  Interest  due  Co.  or  Firm I 

Other  Assets,  not  included  in  Trial  Balance  (state  in  detail.) 
Deduct,  Salaries  due  and  accrued,  Labor,  Rent,  &c.  (esti- 
mated)   $ 

Interest  on  Bonded  Debt  (due  and  accrued) $ 

"        due,  other  than  above | 

Bills  or  Accounts  Receivable  considered  doubtful $  . 

Other  Liabilities,  not  included  in  Trial  Balance   (state  in 
detail) I 


Balance  Net  Assets  over  Liabilities $ 


Contingent  Liability 


Accommodation  Endorsements $ 

I  Endorsed  Bills  Receivable    Outstand- 
'    ing $ 


P'or  Corpora/tons. 

(  Authorized $ 

Capital,  I  Subscribed $ 

(Paid  in $ 

(as  per  Trial  balance.) 
Held  by  Co.  as  Treasury  Stock .  .$ 
How  paid  in: 

Cash % 

Other  property $ 

Description  of  above  property  and  how 

valued 

Incorporated  in  what  State  and  under 
what  General  Law  or  Special  Act. . 

Date  of  Charter 

Commenced  Business 

Officers.  Address. 

Pres 

Vice  -  Pres 

Sec'y 

Treas 

Directors . 


Are  Stockholders  liable  beyond  amount 
subscribed? 


Rate  per  cent,  and  amount  of  dividends 
paid  during  preceding  year. 


for  Firms. 
Individual     worth     of     respective  j 
partners  outside  the  business,    i 

Names  tn/tt// of  all   General   part-  | 
ners  i 


Names  in  full  of  Special  Partners 
with  amounts  contributed  by 
each  and  uutil  when. 


Connection  of  each  p'irtner  in   oth- 
er business,  if  any. 


Time  present  firm  has  been  in  busi- 
ness. 
Succeeded  the  firm  of 


Amount  withdrawn  by  Partners  dur- 
ing preceding  year. 

Amount  of  annual  sales 

Amount  of  annual  expenses 

Amount  of  Accounts  and  Bills  Receivable  past  due 

extended  or  renewed,  if  any 

Insurance  carried  on  Merchandise,  % On  Real  Estate,  $ 

Amount  and  maturity  of  largest  indebtedness  during  present  year  (exclusive  of  bonded 

indebtedness  of  Corporation.) 

Was  last  inventory.  Actual,  if  so,  by  whom  taken  and  date; 

if  Estimate,  by  whom  made  and  dale? 

Regular  times  of  taking  inventory 

Regular  times  of  balancing  books 

Object  for  which  proceeds  of  our  paper  is  wanted 

(Sign  Company  or  Firm  Name) 

Bv 

Dated 


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no  PRACTICAL  BANKlNCt. 

When  one  considers  that  the  prosperity  of  a  bank  depends  more 
on  safely  lending  its  resources  than  anything  else,  excessive  care  can 
hardly  be  talien  in  digging  down  to  the  bottom  of  the  real  or  imaginary 
resources  of  borrowers.  A  banlier  has  thus  well  expressed  the  most 
important  facts  that  ought  to  appear  in  such  a  statement: 

(a)  Is  the  capital  sufficient,  and  has  it  been  contributed  in  cash;  if 
not,  what  does  it  represent? 

(b)  Who  constitute  the  firm,  and  do  the  partners  understand  the 
business? 

(c)  Has  the  stocli  been  taken  in  at  a  fair  figure,  and  has  due 
allowance  been  made  for  depreciation?  This  is  very  necessary  to 
ascertain  in  large  manufacturing  concerns. 

(d)  What  about  accounts  and  bills  receivable?  Has  due  allowance 
been  made  for  doubtful  credits,  and  have  all  bad  debts  been  either 
written  off  or  provided  for? 

(e)  The  liabilities  of  the  firm  should  be  carefully  examined;  are 
they  heavy;  are  they  continuously  large;  to  whom  and  what  for? 

These  are  some  of  the  leading  questions  which  naturally  present 
themselves,  but  in  addition  a  banker  should  ascertain: 

The  habits  of  the  partners— are  they  careful  borrowers?  Do  they 
borrow  for  legitimate  purposes  only,  and  in  what  proportion?  What  is 
their  style  of  living,  extravagant  or  otherwise?  Have  they  been  care- 
fully increasing  the  amount  at  risk  of  the  business,  or  have  they  been 
withdrawing  largely  for  other  purposes,  thus  keeping  up  the  necessity 
for  borrowing? 

Remember  that  assets  are  generally  susceptible  of  reduction,  and 
in  case  of  insolvency  rarely  realize  in  full,  while  liabilities  never  scale 
down. 

That  when  an  account  is  sought  to  be  transferred  from  one  bank 
to  another,  it  is  always  well  for  the  officers  of  the  institution  to  which 
it  is  offered,  to  ascertain  definitely  why  it  leaves  the  other  bank. 

And  that  banks  do  not  exist  for  supplying  permanent  capital. 

In  the  case  of  endorsed  "bills  receivable"  being  offered,  a  careful 
scrutiny  of  the  names  is  invariably  desirable,  not  only  in  the  interests 
of  the  bank  itself,  but  in  those  of  the  customer.  It  is  sometimes 
difficult,  but  always  necessary  to  trace  renewals.  The  devices  for  hiding 
such  are  many  and  devious,  still  they  can  be  traced  and  when  traced 
should  be  immediately  brought  under  the  notice  of  the  endorser;  if 
repeated  frequently,  better  decline  them.  Courteously  warn  your  cus- 
tomer that  "locks  up"  (only  another  word  for  frequent  renewals)  as  a 
rule  ultimately  mean  "bad  debts." 

The  regular  meetings  of  boards  of  directors  in  most  banks  are  held 
twice  a  week,  but, in  some  banks  meetings  are  held  daily.  The  mode 
of  discounting  paper  varies  much  in  different  banking  institutions.  In 
\nauy  of  them,  especially  in  the  larger  cities,  the  business  head,  whether 
he   be   the  president,    vice-president   or   cashier,    passes   on   the   paper 


DIRECTORS   AND   LOANS.  Ill 

as  soon  as  it  is  offered  for  discount.  Customers  cannot  wait,  money  is 
wanted,  and  they  are  speedily  told  whether  they  can  bo  accommodated 
or  not.  But  with  the  country  banks  a  different  custom  prevails.  The 
paper  is  offered  for  discount  and  is  put  before  the  directors,  and  they 
decide  Avhether  to  accept  or  to  decline  it.  The  president  of  a  very 
profitable  bank  in  New  York  City  once  said  to  the  writer,  that  after 
his  l)ank  had  been  in  existence  for  ten  years  it  had  lost  only  three 
pieces  of  paper,  and  these  were  discounted  by  the  board  during  his 
absence.  He  loaned  the  money,  and  the  directors  at  their  meetings 
merelj'  ratified  the  loans  made.  A  board  is  a  very  convenient  body  for 
referring  paper  which  an  officer  is  unwilling  to  accept.  He  does  not 
wish  to  offend  the  offerer  by  declining  to  discount  it,  and  so  it  is  re- 
ferred to  the  board  for  their  action.  This  is  the  least  offensive  way  of 
ttliing  a  man  that  he  cannot  be  accommodated.  Of  course,  many  cases 
are  referred  to  the  board  for  their  action  which  may  be  decided  favor- 
ably. The  amounts  may  be  very  large,  or  there  may  be  something 
peculiar  about  the  loans,  a  longer  time  than  is  usually  granted  perhaps 
may  be  wanted,  and  the  cashier  or  president  may  not  wisli  to  assume 
the  sole  responslljility.  Wlien  banks  hold  daily  meetings  the  directors 
decide  wliat  paper  shall  Ije  discounted. 

In  order  to  have  a  correct  knowledge  of  dealers'  accounts,  the 
cashier  has  on  his  desk  a  book  which  contains  a  record  of  the  average 
daily  balance  of  every  dealer.  This  is  made  up  at  the  end  of  each 
month,  and  the  average  for  the  month  is  entered  in  the  average  book. 
At  the  end  of  the  year  the  average  for  twelve  months  is  struck, 
and  usually  the  average  book  is  so  ruled  as  to  show  the  daily  average 
for  five  or  ten  years  previously.  The  average  book  is  indexed  through- 
out on  the  margin,  with  as  many  leaves  as  are  required  for  each  letter. 
The  names  of  national  banks  are  usually  entered  first,  alphabetically, 
then  state  banks,  then  bankers,  and  then  the  individual  depositors  from 
A  to  Z.    Usually  there  is  a  new  average  book  for  each  year. 

At  directors'  meetings  the  president  is  seated  at  the  head  of  the 
table,  and  the  cashier  occupies  a  convenient  seat  near  him.  In  some 
banks  the  directors  have  particular  chairs,  in  others  no  order  of 
arrangement  is  observed.  The  cashier  reads  the  minutes  of  the  pre- 
vious meeting  of  the  board,  and  after  their  approval  the  board  proceeds 
to  other  business.  The  cashier  records  the  names  of  the  directors 
present,  as  this  fact  is  worth  preserving.  The  business  transacted  since 
the  last  meeting,  as  previously'  stated,  consisting  of  the  discounting  of 
paper  on  the  responsibility  of  the  bank  manager,  is  submitted  for  rati- 
fication. Banking  institutions  are  not  always  so  particular  as  they 
ought  to  be  in  doing  this,  or  in  examining  the  paper  taken. 

When  the  wrong  practices  of  Eno,  the  president  of  the  Second  Na- 
tional Bank  of  New  York,  were  discovered,  it  was  found  that  not  only 
did  he  discount  paper  on  nis  sole  responsibility,  but  kept  it  in  a  vault 
down  town,  not  belonging  to  the  bank,  and  the  directors  never  saw  it. 


112 


PRACTICAL   BANKING. 


They  accepted  his  statement  of  what  he  did  as  true,  and  never  troubled 
themselves  to  loolc  at  the  paper  discounted.  Had  this  been  done,  Eno 
would  have  been  obliged  to  resort  to  some  other  artifice  to  conceal  his 
fraud;  or,  what  is  quite  probable,  could  not  have  gone  so  far  as  he  did, 
without  exciting  suspicion  leading  to  his  detection. 

Vigilance  is  the  price  of  prosperity,  and  this  applies  more  emphat- 
ically to  banking  than  to  almost  any  other  liind  of  business.    No  bank 


Daily  Statement. 


.190 


Monday. 

Tuesday 

Wed. 

Bills  Discounted 

^ 

U.  S.  Bouds  with  Treasurer  to  secure  circulation 

N.  Y.  Clearing- House  Association  Bonds 

Legal-tender  notes 

Other  Real  Estate 

Deposit  with  U.  S.  Treasurer,  5  per  cent,  fund 

Total  footings 

5  per  cent,  fund  and  redemptions 

Reserve  required 

manager,  however  long  and  ably  he  may  have  served  a  bank,  ought 
to  be  permitted  to  conduct  its  affairs  without  supervision.  Directors 
who  do  not  direct  occupy  a  false  position  toward  the  public,  the  depos- 
itors, the  stockholders  and  the  bank  manager.  The  welfare  of  the 
several  classes  concerned  in  the  institution  demand  that  these  officials 
should  not  neglect  their  duties. 

Before  proceeding  to  discount  paper,  it  is  necessary  to  know  what 
resources  a  bank  has  availalile  for  that  purpose.    This  information  is 


DIRECTORS   AND   LOANS, 


113 


contained  in  a  statement  from  the  j^enoral  ledger.    The  following  form 
is  copied  from  the  daily  statement  boolc  of  a  bank  in  New  Yorlv  City: 


Arctic  Xational  Bank  of  the  City  of  New  Yokk. 


Monday. 

Tuesday. 

Wed. 

Capital  stock 

Rents  collected 



"                  "         — to — 

•'                   "         — to  Z 

Banks  and  bankers'  deposits  A  to  — 

—  to— 

"                       "                "         —  to  Z 

{Reported  Saturdays    I.egal-tender  notes 

Clearing  -  House .)      Circulation 

The  items  are  read,  or  the  principal  ones,  and  afterward  the  offer- 
ings, consisting  of  notes  on  which  the  owners  are  desirous  of  obtaining 
money  of  the  bank.  Instead,  however,  of  reading  these,  a  record, 
previously  made  in  a  book  called  an  offering  book,  is  read  to  the 
directors.  In  this  book  the  names  of  the  offerers  are  recorded  alpha- 
betically, the  amount  of  each  note,  the  time  it  is  to  run,  the  name  of  the 
indorser,  where  payable,  and  any  other  particulars  relating  to  it.  In 
small  banks  the  notes  offered  are  read  without  regard  to  alphabetical 
order. 

If  the  amount  of  offerings  exceeds  the  amount  of  loanable  funds  of 
course  not  all  can  be  accommodated,  oven  if  their  notes  be  desirable. 
But  rarely  does  it  happen  when  any  considerable  amount  of  p.aper  is 
offered  that  it  possesses  a  uniform  value.    Some  makers  or  endorsers 


114  PRACTICAL   BANKING. 

are  better  known,  and  are  preferred  to  others.  What,  therefore,  hap- 
pens, is  to  select  from  the  entire  amount  offered  the  most  desirable 
offerings,  and  to  decline  the  remainder.  Yet,  often  the  entire  amount 
offered  is  not  enough  to  absorb  all  the  loanable  funds.  Then  the  bank 
must  look  elsewhere  to  find  a  way  for  employing  its  resources.  One 
way  is  to  buy  paper,  though  in  buying  it  the  board  may  pass  on  the 
transaction  the  same  as  would  be  done  if  offered  in  the  usual  way  for 
discount.    This  business  of  buying  paper  is  worth  a  brief  explanation.* 

It  is  purchased  by  a  bank  of  a  note-broker.  But  where  does  he  get 
such  paper  to  sell?  Of  merchants.  Formerly  they  gave  notes  only  for 
the  merchandise  they  bought,  but  in  recent  times  they  give  notes  with- 
out reference  to  the  purchase  of  any  special  merchandise,  in  order  with 
the  money  thus  obtained  to  discount  their  bills. 

Once  when  notes  were  for  a  longer  period,  and  notes  were  almost 
universallj'  given  for  purchases,  they  were  generally  drawn  to  the 
maker's  order,  and  read  for  value  received  "from  A  B  «fc  Co.,"  or  who- 
ever the  seller  might  be.  Indeed,  some  houses  were  so  careful  lest  the 
paper  might  be  thought  to  be  made  paper  tliat  they  inserted  the  name 
of  the  seller  of  the  mei'chandise  in  full.  This  paper  was  sold  largely 
in  the  "street"  to  banks  and  others,  who  bought  it  with  confidence 
because  it  represented  an  actual  business  transaction.  It  suited  com- 
mission houses  and  importers,  because  if  not  willing  to  hold  the  paper 


*"Of  late  years,"  the  Boston  Commercial  Bulletin  has  remarked, 
"the  practice  has  arisen  among  mercliauts  of  drawing  notes  payable 
to  their  own  order  and  selling  them  through  brokers  to  baulcs  or  other 
lenders  in  the  open  market.  The  p.-actice  has  been  encoui'aged  in  two 
ways:  first,  because  sellers  of  nearly  all  kinds  of  staple  merchandise 
offer  large  discounts  for  cash,  and  the  buyer  Avho  sells  his  note  for 
money  and  then  pays  the  money  for  the  merchandise,  gets  the  benefit 
of  these  discounts;  and  second,  because  a  large  number  of  note-brokers 
are  constantly  going  ai)out  among  the  merchants  and  urging  them  to 
make  such  paper  for  sale. 

"When  a  merchant  secures  his  funds  by  discounting  merchandise 
notes  at  one  or  more  banks  at  which  he  keeps  regular  accounts,  the 
banks  thus  have  an  accurate  metliod  of  determining  the  amount  of 
pai)er  in  the  market  bearing  his  signature  or  endorsement,  and  whether 
It  is  sate  to  accept  any  more  of  it.  But  the  commercial  paper  which 
is  sold  in  tlie  open  market  becomes  so  scattered  that  nobody  but  the 
maker  knows  how  much  of  it  is  in  existence  at  any  one  time.  Cases 
have  occurred  in  which  young  men  began  business  with  small  capital, 
and  being  encouraged  to  increase  their  operations  by  making  single- 
name  notes  and  selling  them  through  brokers,  have  thus  established  a 
credit  utterly  disproportionate  to  their  means.  The  mere  fact  that 
Iheir  notes  have  become  known  in  financial  circles  often  adds  to  their 
credit  and  enables  them  to  give  more  notes.  Originally  the  theory  was 
that  money  obtaininl  in  this  way  was  to  be  devoted  to  the  purchase 
of  merchandise;  but  the  facility  with  whicli  some  merchants  have 
found  themselves  able  to  sell  their  unendorsed  paper  has  too  frequently 
led  them  to  make  sncli  notes  for  other  purposes,  even  for  speculating 
in  stocks  or  for  transactions  widely  separated  from  their  legitimate 
business." 


btRECTORS  AND   LOANS.  Il5 

until  maturity,  they  could  realize  upon  it  without  the  responsibility 
of  endorsing  it.  and  thus  go  on  and  sell  to  a  house  (whatever  their  ow  i 
private  opinion  of  its  soundness  might  be)  so  long  as  the  paper  would 
sell  at  a  rate  of  discount  not  interfering  too  much  with  the  profit  on  the 
goods  or  the  rate  of  commission.  This,  of  course,  was  legitimate 
dealing,  representing  actual  merchandise  transactions.  So,  indeed,  is 
the  making  and  openly  selling  of  one's  paper  in  the  market,  and  the 
using  of  the  proceeds  in  "cashing"  bills,  legitimate,  but  it  is  dangerous 
and  liable  to  abuses.  Funds  so  obtained  can  be  used  for  any  purpose, 
and  the  developments  in  some  recent  failures  have  shown  that  the 
money  was  often  used  for  operations  entirely  outside  of  the  regular 
business  of  the  maker,  or  for  purely  speculative  purposes. 

As  merchants  often  sell  their  paper  at  six  or  seven  per  cent,  interest, 
and  discount  their  own  bills  at  seven  to  nine  per  cent.,  of  course  they 
make  two  or  three  per  cent,  by  borrowing  the  money  for  thus  paying 
their  bills  in  advance  of  their  maturity.  The  bi'oker  gets  a  commission 
for  negotiating  the  merchants'  paper,  which  must  be  deducted  from  the 
profit  of  the  transaction.  After  deducting  this  brokerage,  however, 
there  is  a  considerable  profit  from  borrowing  money  as  just  described, 
and  the  business  has  become  a  very  large  one. 

In  some  parts  of  the  country,  Hartford,  Conn.,  for  example,  the 
banking  capital  is  much  larger  than  can  be  profitably  employed  locally. 
Providence  is  another  place  of  the  kind.  The  banks  of  those  cities  con- 
sequently invest  large  sums  through  note-brokers. 

The  following  is  the  method  of  conducting  the  business  in  the 
largest  cities.  A  printed  or  lithographed  list  of  notes  is  sent  to  a  bank. 
It  may  contain  a  description  of  a  hundred  pieces  of  paper  and  is 
marked,  "This  is  for  bankers'  use  only."  Each  piece  is  numbered.  If 
a  bank  wishes  to  see  any  of  the  pieces  therein  described,  they  are  sent 
on  application.  There  is  another  way,  however,  of  negotiating  such 
paper,  which  may  be  explained  here.  If  a  note-broker  Avere  selling  all 
the  paper  given  by  a  certain  merchant,  the  broker  would  be  very 
careful  in  offering  it  for  sale.  If  a  banker  has  twenty  thousand  dollars 
6i  it,  for  example,  and  the  broker  knows  that  he  cannot  increase  the 
amount,  he  will  be  careful  not  to  offer  more.  The  broker  would  be 
equally  careful  not  to  put  such  paper  on  a  printed  list  through  fear 
that  the  banker  would  see  it,  and  concluding  that  the  merchant  was 
giving  a  large  amount  of  paper,  would  determine  to  buy  no  more.  The 
banker,  in  other  words,  might  conclude  that  the  merchant  was  issuing 
more  paper  than  he  ought  to  issue  if  his  name  appeared  very  frequently 
on  printed  lists. 

Sometimes  the  broker  has  the  notes  in  his  possession  for  sale;  in 
other  cases  he  has  simply  a  memorandum  of  them.  In  the  latter  case 
he  has  a  printed  form  containing  the  name  of  the  maker,  amount,  when 
and  where  payable,  endorser,  and  other  particulars.  A  list  is  sent  to  a 
')ank  containing    such  a  description  of  notes,  or  a  broker,  or  agent  for 


116  PRACTICAL   BANKING. 

him,  may  visit  a  banlv  personally  and  exhibit  such  a  list,  or  the  paper 
itself,  Avhich  he  wishes  to  negotiate.  Many  banks  are  visited  several 
times  a  day  by  these  brokers  offering  the  notes  of  persons  for  sale. 

It  may  be  further  added  that  brokers  do  not  always  get  possession 
of  the  notes  until  they  have  paid  for  them.  Several  practices  exist  in 
this  regard.  One  practice  is  for  a  merchant  to  make  notes  and  then 
deliver  them  to  a  note-broker  for  sale.  The  latter  may  give  a  receipt 
or  acljnowledgment,  or  he  may  not.  In  such  a  case  the  merchant  has 
entire  confidence  in  the  broker,  otherwise  he  would  not  give  him  notes 
without  adequate  security.  There  are  some  very  good  reasons  for 
thus  leaving  notes  with  a  broker  when  perfect  confidence  is  reposed  in 
him.  Very  likely  he  has  a  class  of  customers,  retired  merchants,  per- 
haps, who  buy  paper  occasionally.  They  frequent  his  office,  and,  if  he 
has  notes  which  they  can  examine,  may  be  led  to  purchase,  whereas 
they  would  not  do  so  if  the  broker  had  only  a  memorandum  of  the 
paper,  and  was  obliged  to  send  for  it  before  he  could  sell  it  and  get  the 
money  therefor.  For  this  reason,  therefore,  sales  are  facilitated  by 
entrusting  the  broker— and,  in  truth,  vast  amounts  are  left  for  sale. 
\A'hen  Alonzo  Follet,  of  New  York,  failed  a  few  years  since,  he  had  in 
his  office  nearly  $10,000,000  of  notes,  and  the  amount  of  paper  that  he 
had  sold  anually  was  about  .$100,000,000. 

Another  way  is  for  merchants  to  leave  their  paper  with  a  note- 
broker  and  get  immediately  from  him  a  certain  amount  thereon.  A 
merchant,  for  example,  may  leave  $2.j,000  of  paper  and  ask  for  .$10,000, 
expecting  the  balance  Avhen  the  paper  is  sold.  The  note-broker  pays 
him  this  advance  on  account,  and  after  selling  the  paper  and  deducting 
his  commission  sends  the  balance. 

Another  way  is  for  the  note-broker  to  buy  the  paper,  paying  therefor 
at  the  time  of  the  purchase.  A  note-broker  will  go  to  a  merchant  and 
say,  "I  will  take  so  much  of  your  paper  at  such  a  rate."  If  the  rate 
be  acceptable,  the  merchant  will  sell  it  to  him  and  get  his  money.  In 
these  cases  the  broker  expects  to  sell  the  paper  at  a  lower  rate  and 
to  make  more  than  he  would  if  charging  the  ordinary  commission. 
Many  brokers  do  wholly  a  business  of  this  kind— buying  paper  and 
selling  it  at  the  best  rate  they  can  obtain  for  it. 

In  negotiating  paper  note-brolvers  sometimes  endorse  it.  Follet, 
whom  we  have  previously  mentioned,  guaranteed  all  the  paper  he  sold, 
and  thus  became  contingently  liable  for  a  very  large  amount.  It  was 
said  at  the  time  of  his  failure  that  the  banks  which  bought  it  did  not 
do  so  on  his  guarantee,  but  on  the  credit  of  the  makers  of  the  notes. 
A  bank  president  at  that  time  remarked,  "If  a  man  were  to  guarantee 
the  note  of  the  richest  man  in  New  York,  he  would  be  contingently 
liable  for  its  payment,  but  the  note  Avould  be  valuable  because  the 
maker  was  responsible.  Follet's  transactions  were  very  large,  and  he 
handled  the  paper  of  some  of  the  best  firms  in  the  city.  I  presume  the 
banks  of  the  city  are  now  buying  a  million  dollars  of  paper  a  day  from 


DIRECTORS  AND   LOANS.  117 

brokers,  all  boucrlit  bt'cause  the  maker  is  supposed  to  be  good,  and  not 
because  the  broker  endorses  it." 

It  may  be  added  that  banks  do  not  buy  paper  of  the  brokers  in 
preference  to  discounting  that  of  their  depositors;  but  as  we  have 
previously  said,  these  institutions  are  often  unable  to  loan  all  their 
resources  to  persons  who  make  a  direct  application  for  money.  Banks 
must  therefore  either  resort  to  the  note-brokers,  or  loan  in  some  other 
way. 

This  bought  paper,  as  it  is  termed,  is  entered  in  a  discount  book, 
separate  from  the  Dealers'  Discount  Book,  and  for  a  distinction  the 
bought-paper  book  is  called  Cashier's  Discounts.  Cashier's  checks  are 
given  for  the  paper  purchased,  and  each  day  the  total  payments  of  the 
Cashier's  Discounts  are  credited  to  the  "cashier  account"  in  the  ledger. 
Each  check  when  presented  and  paid  is  charged  to  cashier's  account, 
which  offsets  the  corresponding  credit.  Paper  discounted  for  dealers 
is  posted  in  a  Dealers'  Bill  Book,  with  a  title  page  for  each  dealer. 
Paper  purchased  is  posted  in  a  Cashier's  Ledger,  with  a  title  page  for 
each  name  on  the  strength  of  which  the  paper  is  bought,  and  both 
books,  of  course,  are  indexed.  A  reference  to  any  name  can  therefore 
readily  be  had,  and  the  amount  on  hand,  if  any,  at  once  be  ascertained. 

The  officers,  therefore,  may  tell  at  a  glance  what,  and  how  much  of 
any  name  bought,  they  may  have  on  hand.  Many  banks  have  lying  on 
their  president's  desk  a  small  boolc,  the  leaves  of  which  are  made  of 
silicate  slate,  with  two  or  three  leaves  for  each  letter  of  the  alphabet. 
The  names  of  paper  purchased,  with  the  due  dates  and  amounts,  are 
written  in  pencil  on  the  appropriate  pages,  and  the  entries  are  corrected 
daily  by  erasures  or  additions,  as  the  case  may  be. 

Some  banks  have  adopted  a  very  perfect  system  of  recoi'ding  the 
information  they  obtain  concerning  the  paper  they  buy.  BoolvS  are 
prepared  with  a  page  or  more  devoted  to  each  name.  Here  are  re- 
corded, briefly  and  succinctly,  condensed  extracts  of  mercantile  agency 
reports,  extracts  from  letters  that  may  be  received  relating  to  the 
character  and  responsibility  of  the  house  in  question,  synopses  of 
conversations  with  merchants,  bankers,  and  others  who  have  been 
found  to  know  the  firm,  etc.,  etc.  A  voweled  index  affords  means  of 
speediest  reference  to  any  desired  name. 

Although  the  buying  of  paper  has  long  been  practiced  by  the  banks, 
the  Supreme  Court  of  Minnesota  has  declared  that  a  bank  which  was 
authorized  by  statute  "to  carry  on  the  business  of  banking  by  dis- 
counting notes,  bills  and  other  evidences  of  debt,"  is  without  authority 
to  buy  paper.  The  custom  of  buying  paper  has  not  been  shaken  in 
the  least  by  this  decision.  It  has  been  practiced  too  long  and  exten- 
sively to  be  overthrown  by  anything  except  a  legislative  enactment. 

One  of  the  greatest  objections  to  purchasing  paper  is  the  lack  of 
knowledge  concerning  the  real  worth  of  the  makers  and  other  parties. 
After  the  failure  of  a  great  house  in  1883  for  several  millions  that  had 


118  PRACTICAL  BANKING. 

kept  itself  afloat  for  a  long  time  by  selling  its  paper,  the  New  York 
Tril>une  remarked,  "Even  the  commercial  notes  are  no  longer  issued 
or  discoimted  as  they  used  to  be.  under  circumstances  which  gave  the 
best  possible  guarantee  of  their  payment,  but  are  thrown  on  the-,  market 
to  be  sold  by  brokers  where  and  when  they  can.  The  old  idea  of 
reliance  upon  the  personal  integrity  of  a  borrower,  or  his  business 
sagacity,  or  a  close  acquaintance  with  his  financial  position,  has  nearly 
gone  out,  like  a  spent  candle.  Yet  it  is  notoriously  true  that  the,  new 
system  of  credits  is  not  safer  than  the  old.  In  these  days  no  one  can 
judge  how  much  paper  a  merchant  has  out,  or  how  much  gambling 
there  may  be  behind  his  borrowing,  or  whether  the  coUateralsrthat  seem 
so  good  to-day  will  prove  equally  salable  in  any  emergency.  One  firm 
goes  down  owing  $7,500,000  or  more,  and  is  found  to  have  been  really 
bankrupt  a  year  or  so  for  two  millions,  and  yet  the  present  methods 
are  such  that  its  credit  had  hardly  been  doubtedl until  the  very  end." 

Many  a  banker  knows  from  dear  experience  the  force  of  these 
words.  He  acts  in  the  dark.  He  tries  to  grope  along,  he  makes 
inquiries  from  various  sources,  but  he  realizes  after  seeking  for  light 
from  every  quarter  except  from  the  borrower  himself,  that  he  has  not 
learned  much.  And  his  course  will  necessarily  be  dark  and  uncertain 
until  he  makes  a  radical  departure  and  demands  statements,  as  we 
have  described,  and  verifies  their  truthfulness  by  co-operation  with 
other  banks. 

If  a  single  director  objects  to  a  note  offered  for  discount  or  pur- 
chase, the  board  generally  will  refuse  to-make  the  loan.  If  an  objection 
should  be  based  simply  on  prejudice,  the  board  probably  would  not 
respect  it.  But  if  a  director  should  say,  "I  have  a  pretty  good  reason 
for  not  buying  that  paper,"  his  opinion  would  be  conclusive.  Directors 
are  chosen  partly  for  the  information  which  It  is  supposed  they  will 
throw  on  the  condition  of  business,  and  especially  on  that  in  which  they 
are  engaged.  It  is  supposed  that  a  director  knows  more  about  the 
condition  of  persons  engaged  in  the  same  business  as  himself  than  the 
other  directors,  Avhose  occupations  are  different.  This  is  why  their 
opinions  have  so  much  weight.  Nevertheless,  bank  directors  are  not 
always  disinterested  in  the  performance  of  their  trust.  Not  long  since 
we  heard  the  following  story:  A  bank  director,  who  was  also  a  member 
of  the  produce  exchange  in  a  large  city,  attended  a  meeting  of  the 
directors  of  the  bank.  Several  persons,  who  also  were  members  of  the 
produce  exchange,  had  presented  notes  for  discount,  accompanied  with 
collateral  securities,  principally  warehouse  receipts  for  grain.  When 
these  offerings  were  read,  one  after  the  other,  the  director  in  question 
objected,  maintaining  that  they  were  not  as  safe  as  they  ought  to  be. 
When  the  entire  list  of  offerings  had  been  exhausted,  a  large  balance 
remained  unemployed.  The  director  just  mentioned  said  if  no  better 
use  could  be  made  of  it,  he  would  take  it  though  at  a  rate  which  was 
not  very  remunerative.    His  offer  was  accepted.    Immediately  he  went 


DIRECTORS   AND   LOANS.  119 

to  the  persons  who  had  applied  for  loans  to  his  bank  and  loaned  to  them 
on  the  securities  which  they  had  offered.  Of  course  he  was  not  the 
typical  bank  director.  Generally,  directors  are  men  of  well-known 
integrity,  and  though  too  often  neglectful  in  attending  meetings,  they 
freely  give  their  best  experience  to  the  bank  when  they  do  attend. 

Bank  managers,  as  well  as  bank  directors,  are  often  importuned 
to  make  loans  through  friendship  and  other  than  strictly  business 
reasons.  For  many  years  the  title  page  of  the  Banker's  Magazine  has 
borne  the  following  words,  uttered  by  a  successful  and  eminent  banker 
of  Boston,  Nathan  Appleton:  "No  expectation  of  forbearance  or  indul- 
gence should  be  encouraged;  favor  and  benevolence  are  not  the  attri- 
butes of  good  banking;  strict  justice  and  a  rigid  performance  of 
contracts  are  its  proper  foundations."  Notwithstanding  these  plain 
teachings,  many  a  bank  officer,  througli  sympathy  and  regard  for 
friends  and  customers,  has  granted  loans  which  were  not  warranted 
either  by  their  condition  or  by  that  of  the  bank  at  the  time  of  granting 
them.  There  are  many  occasions  when  a  bank  manager  cannot  easily 
determine  what  course  is  the  most  expedient.  A  considerate  regard 
for  the  wants  of  a  customer,  his  ample  security  for  the  loan,  the  con- 
dition of  the  bank  and  of  trade— these  are  circumstances  which  not 
infrequently  render  a  decision  difficult.  Of  course  no  extra  lights  can 
be  provided  for  these  extraordinary  occasions.  Human  experience 
will  not  avail  much  at  such  times.  If  the  bank  manager  does  not 
comprehend  the  situation,  so  much  the  worse  for  him  and  for  all 
concerned;  any  lesson  he  might  be  likely  to  learn  would  come  too  late 
to  be  of  any  use  to  him. 

When  Mr.  McCuUoch  was  Controller  of  the  Currency,  he  prepared 
some  "Suggestions  to  Managers  of  Banks,"  among  which  were  the 
following  relating  to  discounts.  Nor  are  they  less  forceful  than  they 
were  when  he  wrote  them: 

"Let  no  loans  be  made  that  are  not  secured  beyond  a  reasonable 
contingency.  Do  nothing  to  foster  and  encourage  speculation.  Give 
facilities  only  to  legitimate  and  prudent  transactions.  Make  your  dis- 
counts on  as  short  time  as  the  business  of  your  customers  will  permit, 
and  insist  upon  the  payment  of  all  paper  at  maturity,  no  matter 
whether  you  need  the  money  or  not.  Never  renew  a  note  or  bill  merely 
because  you  may  not  know  where  to  place  the  money  with  e<iual 
advantage  if  the  paper  is  paid.  In  no  other  way  can  you  properly  con- 
trol your  discount  line,  or  make  it  at  all  times  reliable. 

"Distribute  your  loans  rather  than  concentrate  them  in  a  few  hands. 
Large  loans  to  a  single  individual  or  firm,  although  some  times  proper 
and  necessary,  are  generally  injudi^^ious  and  frequently  unsafe.  Large 
borrowers  are  apt  to  control  the  bank,  and  when  this  is  the  relation 
between  a  bank  and  its  customers,  it  is  not  difficult  to  decide  which  in 
the  end  will  sufifer.    Every  dollar  that  a  bank  loans  above  its  capital 


130  PRACTICAL  BANKING. 

and  surplus,  it  owes  for,  and  its  managers  are  ttierefore  under  the 
strongest  obligations  to  its  creditors,  as  well  as  to  its  stockholders,  to 
keep  its  discounts  constantly  under  its  control. 

"Treat  your  customers  liberally,  bearing  in  mind  the  fact  that  a 
bank  prospers  as  its  customers  prosper,  but  never  permit  them  to  dic- 
tate your  policy. 

"If  you  doubt  the  propriety  of  discounting  an  offering,  give  tlie  bank 
the  benefit  of  the  doubt  and  decline  it;  never  make  a  discount  if  you 
doubt  the  propriety  of  doing  it.  If  you  have  reason  to  distrust  the 
integrity  of  a  customer,  close  his  account.  Never  deal  with  a  rascal 
under  the  impression  that  you  can  prevent  him  from  cheating  you. 
The  risk  in  such  cases  is  greater  than  the  profits. 

"In  business,  know  no  man's  politics.  Manage  your  bank  as  a 
business  institution,  and  let  no  political  partiality  or  prejudice  infiuence 
your  judgment  or  action  in  the  conduct  of  its  affairs.  The  national  cur- 
rency system  is  intended  for  a  nation,  not  for  a  party;  as  far  as  in  you 
lies,  keep  it  aloof  from  all  partisan  influences." 

Loans  are  made  by  the  banks  in  many  of  the  large  cities  by  the 
president  or  cashier  or  a  finance  committee.  Times  have  greatly 
changed  and  borrowers  often  wish  to  know  at  once  whether  they  can  be 
accommodated  or  not.  They  cannot  wait  two  or  three  days  for  a  board 
of  directors  to  consider  their  application.  A  few  banks  hold  directors' 
meetings  daily,  the  presidents  insisting  that  they  are  unwilling  to  take 
the  responsibility  alone  of  lending  the  bank's  money. 

The  finance  committee  usually  consists  of  three  or  five  members, 
who  are  expected  to  take  an  active  interest  in  performing  their  duty. 
Their  methods  of  finding  out  the  condition  of  applicants  and  whether 
loans  ought  to  be  made  or  not  are  quite  similar  to  those  of  a  board  of 
dii^ectors,  or  of  the  bank  manager.  When  the  board  meets  the  loans 
made  are  reported  for  ratification  by  the  board  itself.  The  same  course 
is  pursued  by  the  president  or  manager  when  he  is  authorized  to  lend 
the  bank's  money. 

A  bank  examiner,  whose  long  service  renders  his  opinion  worthy  of 
consideration  concerning  the  different  practices  of  discounting  paper 
by  the  president  or  cashier  and  a  discount  committee  remarks,  "Ex- 
perience has  shown  that  as  a  rule  the  former  is  not  the  best  or  safest 
method  for  banks  to  follow,  although  in  many  cases,  under  favoring 
conditions,  it  may  have  proved  eminently  satisfactory.  The  wise  officer 
will  desire  the  help  and  judgment  of  a  committee,  and  the  dividing  of 
responsibility;  although  if  he  has  shown  himself  a  competent  and 
careful  officer  he  should  be  made  to  feel  that  the  board  has  confidence  in 
his  judgment,  and  does  not  wish  to  restrict  his  authority  to  the  poinf 
where  he  is  put  in  an  unfavorable  light  in  the  eyes  of  customers.  It  is 
in  regard  to  large  or  questionable  lines  of  discount  and  new  offerings 
that  the  combined  judgment  of  a  committee  can  bo  of  most  service  both 
to  the  officers  and  to  the  bank.    The  Offering  Book  is  not  so  generally 


DIRECTORS   AND   LOANS.  121 

in  use  as  it  sliould  be.  Every  banic  should  Ivoop  an  Offering  Booli  in 
which  paper  offered  for  discount  is  described  and  action  noted."* 

In  187G  Mr.  McCulIoch  delivered  an  address  before  the  American 
Bankers'  Association,  closing  with  a  statement  of  the  principles  of 
sound  banlving,  which,  notwithstanding  the  length  of  this  chapter, 
ought  not  to  be  omitted  : 

"First.— The  capital  of  banks  should  be  real,  not  fictitious. 

"Second.— The  managers  should  not  be  borrowers,  nor  should  loans 
be  made  to  stockholders  merely  because  they  are  stockholders. 

"Third.— A  certain  amount  of  the  annual  profits  should  be  carried  to 
the  surplus— the  larger  the  surplus  the  better— not  only  for  the  safety 
of  the  stockholders,  liable  as  they  are,  under  the  bank  act,  for  an 
amount  equal  to  their  shares,  but  for  the  protection  of  depositors. 

"Fourth. — Banks  should  be  kept  strong  in  their  cash  reserves,  as 
times  frequently  occur  when  the  strongest  stand  in  need  of  them.  Noth- 
ing in  the  long  run  pays  better  than  a  'goodly'  amount  of  idle  money, 
especially  when  specie  is  the  only  legal  money. 

"Fifth.— As  banks  are  commercial  institutions,  created  for  com- 
mercial purposes,  preference  in  discounts  should  always  be  given  to 
paper  based  upon  actual  commei'cial  transactions.  Banks  are  not  loan 
oflices.  It  is  no  part  of  their  business  to  furnish  their  customers  with 
capital,  nor  should  loans  be  made  under  any  circumstances  for  opera- 
tions in  stocks,  or  to  furnish  facilities  for  stock  operations. 

"Sixth. — Renewals  should  only  be  permitted  to  secure  doubtful 
debts,  or  in  cases  in  which  more  time  is  required  than  was  anticipated 
when  the  loans  were  made,  to  complete  the  transaction  upon  which 
they  were  based. 

"Seventh.— Such  salaries  should  be  paid  to  officers  and  clerks  as 
will  relieve  them  from  the  temptation  to  dishonest  practices;  and  the 
services  of  those  whose  expenditures  exceed  their  salaries  should  be 
promptly  dispensed  with. 

"Eighth.— Bank  managers  should  bear  in  mind  that  they  are  not 
only  trustees  of  stockholders,  but  that  they  owe  something  to  the  public 
—that  their  whole  duty  is  not  performed  when  good  profits  are  made 
and  when  solvency  is  secured,  but  that  they  should  do  all  in  their  power 
to  encourage  morality  in  business  and  to  elevate  credit,  especially 
commercial  credit,  to  the  highest  standard." 


♦Bankers'  Magazine,  March,  1S97,  p.  378. 


122  PEACTICAL  BANKING. 


CHAPTER  IX. 
THE   PRESIDENT. 

The  president  is  the  chief  executive  officer  of  the  bank,  and  presides 
at  the  meetings  of  the  Board  of  Directors,  but  is  not  necessarily  the 
business  head  or  manager  of  the  institution.  Some  banlis  have  a  vice- 
president.  The  vice-president  m  the  absence  of  the  president  assumes 
the  functions  of  the  latter. 

In  legal  matters  the  president  must  sign  documents  conveying  real 
estate,  and  with  the  cashier  must  sign  certificates  of  stock  issued  to 
shareholders,  and  the  circulating  notes.  He,  or  the  cashier,  may 
verify  the  various  reports  required  by  the  national  banking  law  to 
be  made  to  the  Controller,  and  must  certify  to  that  officer  the  payment 
of  each  installment  of  stock.  He  cannot  act  as  proxy  at  meetings  of  the 
shareholders. 

He  is  not  required  to  give  a  bond  to  secure  the  bank  in  the  event 
of  not  faithfully  performing  his  duties,  but  all  the  officials  below  him 
give  such  security.  It  is  supposed  that  his  large  pecuniary  interest 
in  his  bank,  and  his  well-known  standing  in  the  community  where  he 
resides,  will  prove  an  ample  guaranty.  Of  course,  bank  presidents 
are  sometimes  recreant  to  their  trusts,  but  happily  not  often.  It  is 
well  to  believe  there  are  persons  living  in  every  community  whose 
word  is  as  good  as  their  bond,  and  for  them  to  give  such  an  obligation, 
therefore,  is  superfluous. 

The  salary  of  a  bank  president  varies  from  a  very  small  sum  to 
fifteen  thousand  dollars  a  year.  When  his  duties  are  very  few,  and 
only  a  slight  portion  of  his  time  is  devoted  to  the  affairs  of  the  ban!?, 
no  salary  is  paid.    This  is  often  tlie  case. 

We  have  mentioned  that  in  some  cases  he  is  the  real  business  head 
of  a  bank,  and  that  in  others  he  is  not.  The  country  banks,  so  called, 
by  which  is  meant  in  this  place,  the  banlcs  outside  tlie  larger  cities, 
are  managed  by  the  cashier.  Here  and  there  may  be  found  an  excep- 
tion. In  the  large  cities,  however,  the  president  is  usually  the  chief 
business  officer,  going  to  the  bank  regularly,  and  spending  his  time 
there  during  banking  hours.  He  is  a  hard-working  officer,  acquainted 
with  all  the  details  of  the  business,  and  interested  in  all  matters  per- 
taining to  the  prosperity  of  his  enterprise.    Occasionally  the  president 


THE   PRESIDENT.  123 

of  a  city  bank  is  a  Hgure  liead.  and  then  tlae  vice-president  or  cashier 
is  the  chief  business  officer. 

An  author,  from  whom  we  sliall  frequently  (juote,  has  said:  "It 
Is  considered  desirable  that  the  president  should  possess  an  inde- 
pendent income,  and  be  free  from  tlie  entanglements  of  trade.  En- 
gagement in  other  business  would  distract  his  attention  from  the 
bank,  and  might  give  rise  to  a  conflict  of  interests.  Under  the  pressure 
of  personal  embarrassment,  with  the  means  of  relief  in  his  official 
hands,  even  a  rigid  sense  of  duty  might  be  overcome.  The  highest 
tone  of  sentiment  on  this  point  is,  therefore,  adverse  to  his  connection 
with  the  hazards  of  commerce.  Yet  several  of  our  most  prosperous 
New  York  City  banks  have  always  been  presided  over  by  active, 
enterprising  merchants. 

"There  are  other  reasons  why  a  bank  president  should  hold  him- 
self aloof  from  mercantile  business.  With  large  capital  invested  in 
a  particular  branch  of  trade,  his  views  might  insensibly  become  narrow 
and  partial.  An  engrossing  special  interest  would  divert  his  mind 
from  the  close  study  of  credits  generally,  and  make  his  judgment  less 
clear,  as  the  condition  of  commerce  becomes  more  critical.  In  a 
season  of  growing  stringency  in  the  money  market,  self-interest  com- 
pels bank  directors,  in  common  with  others,  to  withdraw  their  atten- 
tion from  all  affairs  but  their  own,  and  thus  additional  responsibility 
is  thrown  on  the  officers,  particularly  on  the  president.  The  discount- 
ing of  paper  is  then  less  strictly  confined  to  the  sessions  of  the  board. 
It  is  spread  through  every  hour  of  the  day,  with  specialties  and  im- 
portunities which  can  be  dealt  with  only  individually  and  privately."* 

The  truth  of  Gibbons'  first  remark  has  been  illustrated  in  a  start- 
ling manner  on  more  than  one  occasion.  A  bank  president  ought  not 
to  be  regarded  morally  as  a  very  superior  being.  If  he  is  engaged  in 
outside  interests  of  greater  pecuniary  or  other  importance  to  him  than 
his  bank,  there  is  danger  that  he  will  neglect  or  use  it  for  a  personal 
end.  This  has  happened  again  and  again.  Within  a  very  short  time 
several  fresh  illustrations  have  been  added  to  those  existing  before. 

If  his  entire  service  is  desired  and  expected,  the  bank  should  pay 
him  a  salary  commensurate  with  the  worth  of  his  service.  And  one 
of  the  strongest  inducements  to  keep  him  out  of  other  business  that 
would  distract  his  attention  and  render  him  less  efficient,  is  a  liberal 
salary,  putting  him  above  the  need  of  acquiring  other  means  to  sus- 
tain himself  and  his  family. 

It  need  hardly  be  said  that  a  bank  president  should  possess  a  very 
considerable  knowledge,  especially  of  men.  It  is  true  that  many  a 
successful  bank  president  has  had  only  a  slight  acquaintance  with 
books,   but  he  has    understood   men.    To   have  this    knowledge  in  a 


♦Gibbon's  Banks  of  New  York,  p.  24. 


124  PRACTICAL  BANKING. 

marked  degree  is  a  gift  rather  than  an  acquirement;  yet  the  less  fortu- 
nate should  strive,  nevertheless,  to  acquire  by  determined  effort  that 
knowledge  of  men  which  is  so  essential  to  business  success. 

A  bank  president  should  keep  a  keen  watch  on  the  movements  of 
trade,  on  the  strength  and  weakness  of  those  to  whom  money  is  loaned, 
or  who  are  likely  to  ask  for  loans,  for  on  the  sagacious  lending  of  the 
bank's  resources  mainly  depends  its  prosperity.  Some  bank  presidents 
read  the  trade  newspapers  with  great  care,  and  search  in  every  quarter 
for  information  relating  to  the  borrowers  of  money.  If  a  consider- 
able number  of  failures  occur  in  a  particular  trade  they  are  carefully 
noted.  A  bank  president  told  the  writer  a  few  years  ago  that  a 
great  deal  of  tobacco  had  been  injured  in  curing  during  that  year,  and 
that  he  should  be  especially  careful  about  discounting  "tobacco  paper," 
because  he  expected  that  a  good  many  failures  would  happen  among 
tobacco  manufacturers.  This  is  the  kind  of  vigilance  required  for  a 
bank  manager.  Still,  however  wisely  he  may  conduct  the  business 
of  discounting,  risks  are  unavoidable,  and  losses  will  accrue. 

As  correct  sentiments  beget  correct  conduct,  a  banker  ought  to  ap- 
prehend correctly  the  objects  of  banking.  They  consist  in  making 
pecuniary  gains  for  the  stockholders,  by  legal  operations.  The  busi- 
ness is  eminently  beneficial  to  society;  but  some  bankers  have  deemed 
the  good  of  society  so  much  more  worthy  of  regard  than  the  private 
good  of  stockholders,  that  they  have  supposed  all  loans  should  be  dis- 
pensed with  direct  reference  to  the  beneficial  effect  of  the  loans  on 
society,  irrespective,  in  some  degree,  of  the  pecuniary  interests  of  the 
dispensing  bank.  Such  a  banker  will  lend  to  builders,  that  houses  or 
ships  may  be  multiplied;  to  manufacturers,  that  useful  fabrics  may 
be  increased;  and  to  merchants,  that  goods  may  be  seasonably  re- 
plenished. He  deems  himself,  ex-officio,  the  patron  of  all  interests 
that  concern  his  neighborhood,  and  regulates  his  loans  to  these  in- 
terests by  the  urgency  of  their  necessities,  rather  than  by  the  pecuniary 
profits  of  the  operations  to  the  bank,  or  the  ability  of  the  bank  to 
sustain  such  demands.  If,  for  instance,  his  bank  is  situated  in  a  region 
dependent  for  its  prosperity  on  the  business  of  lumbering,  the  dealers 
in  lumber  will  naturally  constitute  his  most  profitable  customers; 
hence,  in  promoting  his  own  interest  out  of  their  wants;  he  will, 
legitimately,  benefit  them  as  well  as  himself,  and  benefit  them  more 
permanently  than  by  a  vicious  subordination  of  his  interests  to  theirs. 
Men  will  not  engage  permanently  in  any  business  that  is  not  pe- 
cuniarily beneficial  to  them  personally;  hence,  a  banker  becomes 
recreant  to  even  the  manufacturing  and  other  interests  that  he  would 
protect,  if  he  so  manage  his  bank  as  to  make  its  stockholders  un- 
willing to  continue  the  employment  of  their  capital  in  banking. 

Formerly,  the  authority  of  a  bank  president  was  very  limited.  The 
only  well  defined  authority  he  possessed,   besides  signing  certificates 


The  president.  I^.t 

of  stock,  and  siguing  and  publishing  statements,  was  in  conducting 
the  litigation  of  his  bank.  In  the  earlier  days,  therefore,  he  was  hardly 
anything  more  than  a  dignified  presiding  officer  at  annual  and  board 
meetings.  But  since  then  he  has  become  in  many  banks,  and  with 
rare  exceptions  in  all  the  banks  in  the  larger  cities,  the  real  head  and 
responsible  manager.  In  these  he  has  assumed  extensive  powers  and 
has  been  obliged  to  assume  them.  Their  assumption  was  so  necessary 
that  the  courts  have  had  no  hesitation  whenever  their  exercise  has 
been  questioned,  as  they  often  have  been  of  late,  in  justifying  his 
course  by  virtue  of  his  position.  And  doubtless  he  is  safe  in  assuming 
all  the  implied  authority  possessed  by  the  cashier  in  addition  to  the 
authority  granted  to  him  by  statute.  It  is  contrary  to  reason  to  re- 
strict the  authority  of  the  legal  head  of  such  an  institution  within  a 
narrower  limit  than  that  of  an  officer  below  him.  This  active  par- 
ticipation in  the  business  of  his  bank  requires  that  he  should  be  the 
real  head  in  authority  as  well  as  in  name.* 

In  modern  banking  the  president  often  exercises  very  great  author- 
ity in  lending  money.  Opinions  differ  much  concerning  his  authority  to 
dispose  of  the  resources  of  his  bank,  and  the  correct  answer  must  be 
varied  by  his  ability,  the  composition  of  his  board  of  directors  and 
other  circumstances.  In  some  cases  doubtless  the  directors  are  fully 
justified  in  investing  him  with  very  large  powers  to  lend  the  bank's 
money;  in  other  cases  prudence  just  as  clearly  would  confine  these 
powers  within  narrow  limits.  The  Bank  of  England,  with  a  capital 
of  about  (including  surplus)  .$90,000,000,  intrusts  the  loaning  thereof 
to  the  governor  alone.  He  has  under  him  a  subgovernor,  selected 
from  the  directors,  while  an  executive  committee,  designated  by  the 
board,  may  be  consulted  by  him;  but  the  committee  employs  itself  in 
digesting  matters  for  the  action  of  the  court  of  directors,  rather  than 
in  clogging  the  proceedings  and  diminishing  the  discretion  of  the 
governor.  All  the  joint-stock  banks  of  England  are  organized  with  a 
like  self-depending  executive,  under  the  name  of  general  manager,  and 
a  bank  organized  thus  to  grant  loans  at  all  times,  during  its  business 
hours,  will  present  a  great  inducement  to  customers  over  a  banlv  whose 
discounts  are  accorded  at  only  stated  days,  and  after  a  protracted  de- 
liberation by  directors— loans  being  often  useful  only  when  obtained 


*For  the  most  recent  cases  setting  forth  the  authority  of  the  presi- 
dent, see  U.  S.  Nat.  Bank  v.  First  Nnt.  Bank,  7U  Fed.  Rep.  2!)();  Farmers' 
Nat.  Bank  v.  Templeton.  40  S.  W.  Rep.  412;  Armstrong  v.  Cache  Valley 
J-,and  and  Canal  Co.,  4S  Pac.  Rep.  01)0;  Brown  v.  Farmers'  and 
Merchants'  Nat.  Bank,  HI  S.  W.  Rep.  285;  Merchants  Xat.  Bank  v. 
Eustis,  28  S.  W.  Rep.  227;  First  Nat.  Bank  v.  New,  45  N.  E.  Rep. 
597;  Chemical  Nat.  Bank  v.  Armstrong,  76  Fed.  Rep.  339;  Louisville 
Trust  Co.  Case.  75  Fed.  Rep.  43:>;  Ditty  v.  Dominion  Nat.  Bank,  75 
Fed.  Rep.  709;  Bank  v.  Sullivan,  11  Week.  Notes  3G2. 


1S6  PRACTICAL   BANKING. 

promptly.  Accordingly,  the  view  is  maintained  that  the  due  protest- 
ing of  dishonored  paper,  and  notifying  of  endorsers— the  enforcement 
of  payment,  or  the  obtainment  of  security  on  debts  which  prove  to 
be  unsafe,  will  all  wholesomely  fall  under  the  control  of  the  chief 
executive,  by  reason  that  the  vigilance  of  one  person  can  control  them 
better  than  a  divided  vigilance;  and  that  the  debts  having  come  into 
the  bank  by  his  agency,  his  self-love  is  interested  in  their  collect- 
ability.  He  must  feel  a  like  responsibility  against  losses  by  forgery, 
overdrawn  accounts,  the  depredation  of  burglars,  and  the  peculation 
of  subalterns.  To  secure  in  the  highest  degree  his  vigilance  in  these 
particulars,  he  should  be  intrusted  with  the  selection  of  all  subordinate 
agents,  even  of  the  notary  and  attorneys.  At  least  none  should  be 
appointed  or  retained  with  whom  he  is  not  satisfied.  His  self-respect 
cannot  be  too  much  fostered  by  the  board,  and  no  measure  should  be 
enforced,  and  no  loans  granted,  which  can  wound  his  sensibility,  or 
diminish  his  influence  with  his  subordinates  or  the  customers  of  the 
bank.  The  more  he  can  thus  be  brought  to  identify  himself  with  the 
bank,  the  more  the  bank  will  be  exempt  from  the  disadvantages  which 
make  corporations  contrast  unfavorably  with  private  establishments, 
and  which  a  proverb  alludes  to  in  saying  that  what  is  every  man's 
business  is  nobody's.  So  great  is  the  assimilation  to  their  bank  which 
some  managers  attain,  that  a  poignancy  of  solicitude  in  relation  to  the 
debts  of  the  bank,  the  preservation  of  its  credit  and  the  productive- 
ness of  its  capital  become  the  greatest  evils  of  their  position,  especially 
when  they  are  predisposed  to  morbid  nervousness,  which,  with  disease 
of  the  heart,  their  position  induces  and  fosters.  Such  a  man  will 
obtain  from  his  board  all  the  information  it  can  yield  him  in  relation 
to  the  pecuniary  responsibility  of  his  dealers;  and  the  directors  should 
give  him  their  opinion— not  mandatory,  to  relieve  his  responsibility,  but 
to  inform  his  judgment,  though  he  will  soon  discover  that  his  only 
safe  guide  will  consist  of  his  feelings  founded  on  personal  observa- 
tions too  subtle  often  to  be  described,  much  less  enumerated. 

On  the  other  hand,  there  are  those  who  contend  that  banks  would 
be  better  served  if  they  were  conducted,  as  many  of  the  English 
banks  are,  by  a  general  manager  who  is  not  the  official  head.  An 
advocate  of  the  English  system  remarks  that  the  manager  always 
attends  the  meetings  of  the  board,  and  makes  the  report  of  current 
business  for  its  action.  As  he  is  not  a  member  of  the  board  (still  less 
its  presiding  oflicer),  but  a  salaried  employe,  he  is  expected  to  answer 
respectfully  all  questions  put  to  him  by  any  member. 

By  the  American  system  the  president  occupies  the  position  of  a 
superior  to  his  fellow-directors  because: 

First,  he  alone  knows  about  all  the  business. 

Second,  he  is  the  presiding  officer,   which  gives  him  a  groat  ad- 


THK   PRESIDENT.  12T 

vantage,  and  he  is  commonlj'  sustained  by  some  members  who  may  be 
closely  allied  with  him  in  business. 

Third,  he  is  usually  the  largest  shareholder  or  the  nominee  of  the 
largest  shareholders,  and  in  a  position  to  "drop"  any  troublesome 
member  of  the  board  at  the  next  election.  These  causes  are  sufficient 
to  malce  his  position  practically  dictatorial. 

Further,  by  the  English  system,  the  members  of  the  board  are  in 
direct  contact  M'ith  the  actual  manager  of  the  company,  and  come  to 
understand  its  affairs  in  detail,  and  to  have  views  of  their  own;  while, 
in  an  American  board,  all  that  the  directors  frequently  know  of  the 
practical  working  of  details  is  what  they  can  screw  at  second-hand 
out  of  the  president. 

It  has  been  i-emarked  that  to  make  gains  is  the  proper  business  of 
a  banker,  and,  as  the  principal  source  in  legitimate  gain  is  lending 
money,  the  bank  must  lend  to  the  extent  of  its  ability — erring  on  the 
side  of  repletion,  rather  than  of  inanition;  for  a  banker  knows  not 
how  far  his  bank  can  bear  extension  till  he  tries;  hence,  if  timidity, 
indolence,  or  apathy,  limits  his  loans  in  advance  of  necessity,  he  may 
injure  the  community  by  unnecessarily  withholding  pecuniary  assist- 
ance, and  injure  the  stockholders  by  unnecessarily  abridging  the 
profits.  He  must  not,  however,  extend  his  loans  regardless  of  the 
future,  but,  like  a  skillful  mariner,  he  should  see  an  approaching 
storm  while  it  is  an  incipient  breeze,  and  meanwhile  carry  all  the  sail 
that  will  not  jeopardize  the  safety  of  his  charge;  governing  his  dis- 
counts, at  all  times,  more  by  the  condition  of  his  funds,  and  his  own 
prospective  resources,  than  by  any  reputed  scarcity  or  abundance  of 
money  in  other  places  and  in  other  banks. 

If  he  can  make  reasonably  good  profits  on  his  capital  without  much 
expansion,  he  may  keep  more  restricted  in  his  loans  than  he  could  if 
less  favorably  circumstanced.  Every  banker  must,  however,  remem- 
ber, that  to  be  strong  in  funds  and  rich  in  profits  are  natural  in- 
compatibilities; hence,  the  more  money  a  banker  wishes  to  make,  the 
poorer  in  funds  he  must  consent  to  become.  In  banking  operations, 
as  in  most  other,  wisdom  lies  in  a  medium  between  extremes;  and 
if  a  banker  can  keep  funds  enough  for  practical  safety,  he  had  better 
forego  excess  of  funds,  and  receive  an  equivalent  in  gains.  Physicians 
say  that  the  human  body  can  bear  excess  of  food  better  than  deficiency. 
The  excess  can  be  discharged  by  cutaneous  eruptions,  as  we  see  some- 
times in  over-fed  infants;  but  deficiency  of  nourishment  will  not  re- 
lieve itself;  so  in  banking,  a  repletion  of  loans,  if  they  are  undoubtedly 
solvent,  prompt,  and  short,  will  .soon  of  themselves  work  a  relief  to 
the  bank;  but  a  paucity  of  loans  cannot,  by  any  process  of  its  own, 
cure  the  scant  profits  of  the  stockholders.  Banks  are  rarely  injured, 
therefore,  by  an  excess  of  discounts.  When  banks  fail,  their  disaster 
proceeds  from  the  quality  of  their  loans,  not  from  the  quantity. 


128  PRACTICAL   BANKING. 

Funds  should  not  be  inactive  wtien  no  better  excuse  exists  therefor 
than  that  the  business  that  can  be  obtained  is  not  so  profitable  as  the 
business  of  some  other  place,  or  at  sonae  other  period.  The  legal  rate 
of  interest  is  so  high,  that  the  voluntary  forbearance  of  its  reception 
for  even  a  short  period,  is  ordinarily  a  greater  evil  than  the  reception 
of  any  common  description  of  solvent  loans.  Any  way,  a  banker  who 
keeps  his  funds  inactive,  to  await  the  ofCer  of  loans  more  lucrative 
than  simply  the  interest  of  money,  should  be  well  assured  that  the 
future  loans  will  be  sufficiently  lucrative  to  compensate  for  the  for- 
bearance. But  no  disadvantages  of  position  must  be  deemed  a  suf- 
ficient apology  for  the  assumption  of  hazardous  loans.  When  no  safe 
business  offers,  no  business  should  be  transacted  by  a  banker  who 
entertains  a  proper  respect  for  himself,  or  a  proper  feeling  for  his 
stockholders.  Gains  may  be  impossible,  but  losses  are  measurably 
avoidable.  If  any  location  presents  the  alternative  of  no  business,  or 
great  hazards,  a  banker  is  accountable  for  the  choice  which  he  may 
make  between  the  two  alternatives;  and  he  is  accountable  no  further. 

As  every  loan  is  usually  attended  with  some  advantage  to  the  bank, 
in  the  ways  we  have  explained,  beyond  the  interest  paid  by  the 
bori'ower,  the  sooner  the  loan  is  to  be  repaid  to  the  bank,  the  more 
frequently  will  the  bank  be  able  to  reloan  the  money,  and  obtain  a 
repetition  of  the   incidental  advantages. 

Country  banks  being  subject,  at  certain  seasons,  to  a  demand  for 
currency,  every  judicious  banker  will  endeavor  to  so  select  the  loans 
which  he  makes  during  a  year,  that  large  amounts  of  them  will  be- 
come payable  at  the  precise  periods  of  the  spring  and  fall  when 
fimds  will  be  most  needed.  This  is  imitating  the  conduct  of  Pharaoh, 
who.  during  the  years  of  plenty,  accumulated  provisions  for  the  periods 
of  apprehended  famine.  Many  mouths  of  every  year  are  months  of 
plenty  with  every  well-conducted  bank.  The  paper  which  is  selected 
for  the  future  contingency  will  be  useful  in  proportion  to  its  reliability; 
and  paper  payal)le  in  New  York,  or  other  Eastern  cities,  may  be  more 
useful  than  any  other.  No  rule  of  banking  is  more  practically  valuable 
than  the  foregoing. 

In  large  cities  discounts  are  generally  made  to  persons  who  are 
known  personally  or  by  reputation  to  some  of  the  directors,  but  in 
country  banking,  the  borrowers  and  their  endorsers  in  many  cases  are 
residents  of  remote  places,  and  unknown,  personally,  in  the  locality  of 
the  bank.  A  coimtry  banker,  who  should  insist  on  a  personal  ac- 
quaintance with  the  makers  and  endorsers  of  all  the  paper  he  desired 
to  buy,  might  find  his  business  restricted  to  a  circle  too  small  for  the 
employment  of  his  capital.  In  vain  will  such  a  banker  insist  thp.t  he 
ought  not  to  make  loans  to  persons  of  whom  he  possesses  no  knowl- 
edge; the  answer  will  be  that  ho  should  acquire  tlie  knowledge.  It 
is  indispensable  to  his  bank.    He  is  bound  to  know  a  sufficient  number 


THE  PRESIDENT.  129 

of  persons  to  enable  his  bank  to  employ  its  capital  advantageously. 
Every  note,  therefore,  that  he  rejects  for  want  of  knowledge,  is 
ostensibly  a  slight  reproach  on  him,  in  cases  where  he  has  not  a  suf- 
ficiency of  known  borrowers;  while  every  note  that  he  rejects  or  ac- 
cepts by  means  of  his  knowledge  of  the  parties  is  a  tribute  to  his 
industry  and  vigilance. 

The  preceding  remarks  will  show  why  country  banks  are  specially 
liable  to  loss  from  forgeries.  Moreover,  many  of  the  makers  and 
endorsers  who  deal  with  country  banks  write  poorly,  and  their  signa- 
tures bear  but  little  internal  evidence  of  genuineness,  even  when  you 
are  partially  acquainted  with  the  parties;  for  the  same  person  will 
write  differently  at  different  times,  and  especially  with  different  pens 
and  different  qualities  of  ink;  and  he  varies  these  continually.  Still, 
the  greater  the  danger  the  greater  is  the  caution  which  the  banker 
must  exercise.  He  must  bring  to  the  difficulty  all  the  scrutiny  of 
which  the  case  is  susceptible,  or  he  will  not  stand  excused  for  con- 
sequent losses.  A  comparison  of  any  proffered  signature  with  one  that 
is  genuine,  though  encumbered  with  difficulties  as  above  explained, 
is  a  guide  that  should  not  be  neglected;  and  it  is  often  the  best  that 
can  be  resorted  to.  Banks,  therefore,  keep  a  book  in  which  every 
person  who  deals  with  the  bank  inserts  his  name.  The  signatures 
should  be  placed  alphabetically,  to  facilitate  a  future  reference  to 
them.  The  endorsers  may  never  visit  the  bank;  but,  when  a  note  is 
paid,  the  names  of  the  endorsers  may,  with  the  consent  of  the  maker, 
be  cut  from  the  note,  and  pasted  into  the  book,  in  their  proper  order. 

In  no  very  long  time  a  mass  of  autographs  may  be  thus  collected. 
Some  names  on  notes  may  not  be  deserving  of  such  preservation;  and 
in  this  particular,  as  in  all  others,  the  banker  must  exercise  his  judg- 
ment. 

As  a  banker  will  lend  to  the  extent  of  his  ability,  that  he  may  make 
for  his  bank  all  tlfe  gains  in  his  power,  he  must  be  well  acquainted 
with  the  pecuniary  means  and  abilities  of  his  bank.  He  can  keep  on 
his  table  a  summary  showing  the  precise  amount  of  his  funds  and 
where  they  are  situated,  and  of  what  they  are  composed;  also  an  ag- 
gregate of  his  various  liabilities.  Such  a  summary,  when  corrected 
daily,  or  more  frequently  if  necessary,  will  constitute  a  chart  by  which 
he  will  be  able  to  judge  whether  he  can  lend,  or  whether  he  must 
retrench  existing  loans.  The  funds  that  will  be  adequate  to  any 
given  amount  of  liability  a  banker  must  learn  by  experience,  em- 
barrassed as  he  will  l)e  l)y  a  want  of  uniformity  in  the  results  of  his 
experience  at  different  periods.  Every  bank  must  be  liable,  momen- 
tarily, to  demands  for  payment  of  its  deposits  (and  bank  notes,  if  it 
issues  any)  beyond  its  present  funds.  Tractically,  however,  if  a  banker 
has  funds  enough,  day  by  day,  to  meet  the  requirements  of  the  day, 
he  has  funds  enough.  "Sufficient  for  the  day  is  the  evil  thereof."  is  a 
proverb  peculiarly  applicable  in  banking. 
d 


130  PRACTICAL  BANKING. 

But  a  banker  must  not  be  satisfied  by  knowing  that  his  funds  of 
to-day  will  be  sufficient  for  the  wants  of  the  day.  He  must  possess  a 
reasonable  assurance  that  the  same  will  be  his  position  "to-morrow, 
and  to-morrow,  to  the  end  of  time."  To  gain  this  assurance,  he  ought 
to  keep  also  before  him  one  or  more  lists  in  detail  of  his  prospective 
resources,  showing  what  notes  and  acceptances  will  be  payable  to  the 
bank  daily  for  some  weeks  or  months  ahead,  and  where  they  are  pay- 
able. With  such  lists,  and  a  knowledge  of  the  reality  of  the  paper 
thus  going  onward  to  maturity,  he  will  be  able  to  judge  whether  his 
prospective  resources  will  need  the  aid  of  his  existing  unemployed 
funds;  or  whether  he  may  loan  them,  and  even  extend  his  liabilities 
in  anticipation  of  a  prospective  surplusage  of  resources. 

By  means  of  such  lists  as  we  have  just  described,  should  a  banker 
discover  that  his  existing  resources  will  be  small  during,  say,  the 
month  of  June,  he  can  aid  the  defect  by  discounting  in  the  preceding 
INIay,  April  or  March,  paper  that  will  mature  in  June.  By  thus  regu- 
lating, prospectively,  his  future  resources,  he  can  be  always  provided 
with  funds.  And  that  a  banker  may,  at  all  times,  be  master  of  hia 
resources,  he  should  never  promise  prospective  loans,  or  make  loans 
with  any  promise  of  their  renewal.  The  more  he  keeps  uncommitted, 
the  better  will  he  be  able  to  accommodate  himself  to  future  exigencies. 
Banking  is  subject  to  sufficient  uncertainties,  without  unnecessarily 
aggravating  them  by  prospective  agreements.  A  banker  may  be  un- 
able to  fulfill  such  pledges,  and  be  thus  compelled  to  falsify  his  prom- 
ises; or,  he  may  be  able  to  fulfill  them  only  at  a  sacrifice  of  the  in- 
terests of  his  bank,  and  thus  be  placed  in  the  unwholesome  dilemma 
of  injuring  his  personal  character,  or  of  preventing  the  injury  only  by 
a  sacrifice  of  the  interests  of  his  bank. 

A  banker  is  compelled  to  employ  officers  to  whom  he  intrusts  his 
vaults  and  their  contents.  Robberies  are  often  committed  by  persons 
thus  intrusted,  and  some  such  robberies  have  remained  long  concealed. 
The  banker  cannot  be  responsible  for  all  such  occurrences;  still,  vigil- 
ance can  accomplish  much  in  the  way  of  security  against  mischances, 
and  the  banker  is  responsible  for  the  exercise  of  all  practicable  vigil- 
ance. Robberies  and  frauds  possess  usually  some  discoverable  con- 
comitants. No  man  plunders  to  accumulate  property  that  is  not  to 
be  used.  Its  use,  therefore,  which  can  rarely  be  wholly  concealed,  is 
a  clue  which  a  vigilant  eye  can  trace  to  the  plunderer.  Nearly  every 
plunderer  is  a  prodigal,  and  may  thereby  be  detected;  nearly  every 
plunderer  is  needy,  and  should  therefore  be  suspected.  The  banker 
should  know  human  nature,  and  be  able  to  trace  effects  to  their 
causes,  and  to  deduce  effects  from  causes.  To  this  extent  he  is  answer- 
able for  tlu'  safety  of  his  bank.  The  sentinel  whose  post  happens  to 
be  surprised  by  an  enemy  may  escape  punishment  as  a  criminal,  but 


THE   PRKSIDENT.  131 

he  can  rarelj^  gain  commendation  for  vigilance,  or  escape  censure  for 
carelessness. 

No  system  of  banking  can  escape  the  casualty  of  doubtful  debts. 
Usually  the  most  favorable  time  to  coerce  payments  is  when  they 
first  become  payable.  Then  the  debtor  has  expected  to  pay,  and  if 
he  is  then  in  default  no  certain  dependence  can  be  made  on  his  sub- 
sequent promises.  He  is  also  usually  less  offended  by  a  legal  enforce- 
ment of  payments  when  they  are  'promptly  enforced,  and  when  he 
knows  the  creditor  is  disappointed  by  the  default,  than  he  is  after  the 
default  has  been  tacitly  acquiesced  in  by  a  long  forbearance  of  coercive 
measures.  Additional  security,  when  necessary,  can  also  be  more 
readily  obtained  at  the  time  of  the  default,  than  it  can  after  the  debtor 
has  become  reconciled  by  time  to  his  dishonorable  position.  His  credit 
is  better  now  than  it  will  be  subsequently,  and  be  can  more  readily 
now  than  subsequently  obtain  responsible  endorsers.  In  relation  to 
the  extension  of  time  on  receiving  additional  security  on  a  weak  debt, 
any  extension  that  is  productive  of  security  is  a  less  banking  evil  than 
insecurity;  just  as  any  protraction  of  disease  that  results  in  health  is  a 
less  physical  evil  than  death. 

A  banker  will  be  often  subjected  to  importunity  by  persons  who  will 
desire  a  deviation  from  the  usual  modes  of  banking.  They  will  propose 
a  relaxation  of  good  rules,  and  allege  therefor  some  pressing  emerg- 
ency; but  if  the  relaxation  involves  any  insecurity,  any  violation  of  law 
or  of  ofi3cial  duty,  the  banker  should  never  submit,  even  when  the 
result  may  promise  unusual  lucrativeness  to  his  bank.  While  a  banker 
adheres  with  regularity  to  known  forms  of  business  and  settled  prin- 
ciples. Providence  is  a  guarantee  for  his  success;  but  when  he  deviates 
from  these.  Providence  is  almost  equally  a  guarantee  of  disaster,  both 
personal  and  official. 

On  the  other  hand,  it  has  been  said  by  a  banker  whose  experience  is 
worth  heeding,  that  it  is  one  of  the  duties  of  the  president  to  protect 
a  dealer  when  he  is  unjustly  assailed.  To  do  this  is  also  for  the  ad- 
vantage of  the  bank.  Beside  the  general  results  of  the  fair  treat- 
ment of  credit,  there  is  this  particular  result,  that  the  best  class  of 
customers  which  a  bank  can  have  consists  of  those  whom  it  has 
nurtured  from  moderate  to  larger  success,  and  whose  experience  has 
been  all  along  linked  in  agreeable  intercourse  with  its  officers  and 
directors.  These  are  not  easily  seduced  to  open  accounts  with  other 
banks;  but  they  are  faithful  to  their  old  friends,  and  they  introduce 
other  dealers. 

Banking  is  a  business,  and  should  l)e  reciprocally  beneficial  to  the 
borrower  and  the  lender.  When  a  borrower's  business  cannot  yield  the 
requisite  reciprocity  of  benefit,  he  will  often  attempt  to  mend  the 
defect  by  pertinacity  of  application,  and  by  persuasions  addressed  to 
the  directors  of  a  bank  personally,  as  well  as  to  the  banker;  and  by 


132  PRACTICAL  BANKING. 

servility  and  sycophancy.  Such  conduct  is  a  strong  symptom  of  some 
latent  defect  in  the  applicant's  pecuniary  position,  and  the  appliances 
should  strengthen  a  banker  in  his  refusal  of  loans  rather  than  facilitate 
their  application.  Loans  thus  obtained  rarely  result  favorably  to  the 
lender. 

No  man  is  safe  when  engaged  in  a  speculation,  especially  when  the 
price  of  the  article  that  he  purchases  is  above  the  usual  cost  of  its 
production.  The  speculator's  intellect  soon  loses  its  control  over  him 
and  he  will  be  controlled  by  his  feelings,  and  they  are  unnaturally 
excited.  He  becomes  a  monomaniac  in  the  particular  concern  with 
which  he  is  engaged.  He  will  increase  his  purchases  beyond  all  mod- 
eration, and  at  prices  which  he  himself,  when  he  commenced  his  pur- 
chases, would  have  deemed  ruinous.  Many  banks  are  destroyed  by 
such  speculators.  A  bank  will  loan  to  them  till  its  safety  seems  to 
require  that  the  speculation  must  be  upheld  against  a  falling  market; 
and  the  effort  is  made  till  the  continued  decline  in  prices  ruins  both 
speculators  and  sustaining  bank. 

When  a  debtor  arrives  at  a  certain  magnitude  of  indebtedness  he 
becomes  the  master  of  his  creditor,  who  is  somewhat  in  the  position  of 
Jonah  when  swallowed  by  the  whale.  The  debtor  can  say  to  a  bank 
thus  circumstanced  that  to  stop  discounting  for  him  will  ruin  him, 
and  that  his  ruin  will  involve  a  loss  of  the  existing  debt.  Mo  prudent 
banker  will  be  placed  iu  such  a  position,  but  should  any  banker  lapse 
into  so  sad  an  error,  he  will  rarely  mend  his  position  by  yielding  to 
the  proposed  necessity  for  further  loans.  He  had  better  brave  the  ex- 
isting evil  than  yield  to  an  argument  which,  if  already  too  potent  to 
be  disregarded,  will  acquire  additional  strength  by  every  further  dis- 
count, and  render  his  inevitable  fall  more  disastrous  to  his  stock- 
holders and  more  disreputable  to  himself. 

With  respect  to  his  contingent  expenses,  the  more  a  banker  can  re- 
duce their  amount,  the  more  easily  will  he  make  reasonable  dividends 
of  profit  among  his  stockholders,  without  an  undue  expansion  of  loans 
and  consequent  anxiety  to  himself.  The  income  of  a  bank  is  only  an 
aggregate  of  petty  accumulations.  Every  unnecessary  expenditure  of 
one  hundred  dollars  by  the  bank  will  nullify  the  interest  on  four 
ninety-day  loans  of  fifteen  hundred  dollars  each— loans  often  withheld 
from  meritorious  claimants.  The  economy  of  which  we  speak  is  not 
any  unjust  abridgment  of  properly  remunerative  salaries  to  faithful 
oflicers  and  servants,  who  should,  however,  labor  diligently  and  per- 
severingly  in  their  vocations,  as  men  labor  in  other  employments,  ao 
that  the  bank  may  economize  in  the  number  of  its  agents,  instead  of 
economizing  in  the  magnitude  of  their  salaries.  A  hundred  dollars,  or 
a  thousand,  when  contrasted  with  the  capital  of  a  bank,  may  seem 
a  small  matter,  and  probably  bank  expenditures  are  often  incurred 
under  such  a  contract;  but  the  true  contrast  lies  between  the  ex- 


THE  PRESIDENT.  133 

pendlture  and  the  net  percentage  of  a  bank's  gains.  A  bank  whose 
net  income  will  not  exceed  the  legal  rate  of  interest  possesses  uo  fund 
from  which  to  squander.  And  banks  often  expend  an  unduly  large 
part  of  their  capital  in  architecture  to  ornament  the  city  of  their  loca- 
tion, or  to  rival  some  neighboring  institution,  whose  extravagance 
ought  to  be  shunned,  not  followed.  Xo  person  has  yet  shown  why 
banks  should  be  built  like  palaces,  while  the  owners  of  the  banks  are 
to  a  good  extent  poor,  and  live  humbly.  The  custom  is  perhaps 
founded  on  the  delusion  of  deeming  a  great  capital  identical  with 
great  wealth.  When  several  men,  for  any  purposes  of  gain,  unite  their 
several  small  capitals,  they  may  well  need  a  larger  building  and  more 
agents  than  each  man  would  require  were  he  unassociated;  but  that 
the  association  can  afford  an  organization  increased  in  splendor  as 
much  as  in  magnitude,  is  a  fallacy  somewhat  analogous  to  the  blunder 
of  the  Irishman,  who,  hearing  that  his  friend  intended  to  walk  forty 
miles  during  a  day,  said  that  he  would  walk  with  him,  and  then  they 
could  walk  eighty  miles. 

When  solicited  by  a  neighbor  or  a  friend,  few  men  possess  vigor 
enough,  or  conscientiousness  enough,  to  refuse  a  recommendation,  or 
to  state  therein  all  they  suspect  or  apprehend.  They  will  studiously 
endeavor  not  to  malce  themselves  pecuniarily  responsible  by  any 
palpable  misrepresentation;  hence  they  will  so  qualify  the  recommen- 
dation that  it  will  admit  of  a  construction  consistent  with  truth;  but 
the  qualification  will  be  so  enigmatical  or  subtle  that  the  banker  will 
not  interpret  it  as  the  recommender  will  show  subsequently  it  ought 
to  have  been  interpreted.  Besides,  the  man  who  merely  recommends 
a  loan  acts  under  circumstances  that  are  much  less  favorable  to 
caution  than  the  man  who  is  to  lend.  "When  we  are  in  the  act  of  mak- 
ing a  loan,  our  organization  presents  the  danger  with  a  vividness  that 
is  not  excited  by  the  act  of  recommending.  To  believe  speculatively 
that  we  will  suffer  the  extraction  of  a  tooth,  is  a  wholly  different 
matter  from  sitting  down  and  submitting  to  the  operation.  Suicide 
would  be  far  more  common  than  it  is,  if  a  man  could  feel,  when  the 
act  was  to  be  performed,  as  he  feels  when  he  only  prospectively  re- 
solves on  performing  it.  This  preservative  process  of  nature  no  banker 
should  disregard  by  substituting  any  man's  recommendation  for  the 
scrutiny  of  his  own  feelings  and  judgment  at  the  time  when  the  loan 
is  to  be  consummated,  though  he  may  well  give  to  recommendations 
all  the  respect  which  his  knowledge  of  the  recommender  may  properly 
deserve. 

By  acting  according  to  the  dictates  of  his  own  judgment,  a  man 
strengthens  his  own  judgment  as  he  proceeds;  while  a  man  who  sub- 
ordinates his  judgment  to  other  men's  is  continually  debilitating  his 
own.  Nothing  also  is  more  fallacious  than  tlic  principle  on  which  we 
ordinarily  defer  to  the  decision  of  a  multitude  of  counselors.    If  fifty 


134  PRACTICAL  BANKING. 

men  pull  together  at  a  cable,  the  pull  will  combiue  the  strength  of  one 
man  multiplied  by  fifty;  but  if  fifty  men  deliberate  on  any  subject,  the 
result  is  not  the  wisdom  of  one  man  multiplied  by  fifty,  but  at  most 
the  wisdom  of  the  wisest  man  of  the  assemblage;  just  as  fifty  men, 
when  they  look  at  any  object,  can  see  only  what  can  be  seen  by  the 
sharpest  single  vision  of  the  group;  they  cannot  combine  their  vision 
and  make  thereof  a  lens  as  powerful  as  the  sight  of  one  man  multiplied 
by  fifty.  A  banker  may,  therefore,  well  resort  to  other  men  for  infor- 
mation, but  he  may  differ  from  them  all,  and  still  be  right;  anyway, 
if  he  perform  the  dictates  of  his  own  judgment,  he  performs  all  that 
duty  requires;  if  he  act  otherwise,  he  performs  less  than  his  duty. 
Let  the  counsel  of  your  own  heart  stand,  says  tbe  Bible;  and,  by 
way  of  encouragement,  it  adds,  that  a  man  can  see  more  of  what 
concerns  himself  than  seven  watchmen  on  a  high  tower. 

A  banker  should  possess  a  sufficiency  of  legal  knowledge  to  make 
him  suspect  what  may  be  defects  in  proffered  securities,  so  as  to  sub- 
mit his  doubts  to  authorized  counselors.  He  must,  in  all  things,  be 
eminently  practical.  Every  man  can  tell  an  obviously  insufficient  se- 
curity, and  an  obviously  abundant  security;  but  neither  of  these  con- 
stitute any  large  portion  of  the  loans  that  are  offered  to  a  banker. 
Security  practically  sufficient  for  the  occasion  is  all  that  a  banker  can 
obtain  for  the  greater  number  of  the  loans  he  must  make.  If  he  must 
err  in  his  judgment  of  securities,  he  had  better  reject  fifty  good  loans 
than  make  one  bad  debt;  but  he  must  endeavor  not  to  err  on  the  ex- 
treme of  caution  or  the  extreme  of  temerity;  and  his  tact  in  these  par- 
ticulars will,  more  than  any  other,  constitute  the  criterion  of  his  merits 
as  a  banker. 


THE   CASHIER.  135 


CHAPTER    X. 
THE    CASHIER. 

We  have  already  said  that  every  bauk  had  a  leading  business  official 
who  was  either  the  president,  vice  president  or  cashier.  The  presidents 
of  the  country  banks  very  generally  perform  only  a  few  duties  besides 
those  required  by  law  which  cannot  be  delegated.  Here  and  there 
may  be  found  a  president  who  is  the  real  head  of  the  concern.  In  the 
larger  cities  the  president,  in  most  cases,  is  the  real  manager,  who  is 
elected  to  act  in  that  capacity,  and  on  whom  the  responsibility  and 
success  of  the  bank  depend. 

The  cashier,  unless  there  be  a  vice  president,  ranks  next  to  the 
president,  and  has  certain  specified  duties  to  perform.  These  are  men- 
tioned in  the  law  under  wliich  the  bank  exists.  But  from  what  has 
been  already  said,  he  may  also  be  the  real  head  of  the  bank  in  con- 
ducting its  business,  and  this  is  often  the  case,  especially  in  country 
banks,  which  form  by  far  the  majority  of  the  whole  number. 

The  tenure  of  office  of  the  cashier  and  other  officials  of  a  national 
bank  cannot  be  put  by  contract  beyond  the  power  of  removal  by  the 
directors.  For,  since  the  national  bank  act  provides  that  they  hold 
their  offices  subject  to  the  pleasure  of  the  board  of  directors,  "neither 
the  bank  nor  its  board  can  make  time  contracts  or  appointments  in 
violation  of  that  provision."* 

His  specific  duties  may  be  thus  defined.  He  keeps  a  record  of  the 
meetings  of  the  directors,  at  which  he  acts  as  secretary.  The  cer- 
tificates of  stock  issued  to  shareholders  are  signed  by  him  as  well  as 
the  president,  and  so  are  the  bank  notes  which  circulate  as  money. 
Checks  also  drawn  on  other  banks  are  signed  by  him,  imless  absent, 
when  they  are  signed  by  the  president.  Drafts  and  notes  sent  away 
to  other  banks  are  endorsed  by  him.  These  endorsements  are  usually 
stamped: 

"Pay  to  the  order  of 

First  National  Bank,  New  York  City, 

Arctic  National  Bank,  Philadelphia. 

.JOHN   SMITH.   Cashier." 


*Westervelt.   v   Molirenstecher,   7(i   Fed.   Rep.   122;   Holies*   National 
Bank  Act,  section  8.">a,  p.  4^}, 


136  PRACTICAL  BANKING. 

The  correspondence  of  the  bank  is  conducted  in  the  name  of  the 
cashier,  and  when  his  signature  is  alone  required  that  of  the  president 
may  be  substituted,  but  the  alternate  substitution  cannot  be  made. 
Formerly  a  cashier  could  hold  no  stoclj  in  his  banli,  and  it  was  re- 
garded an  improper  thing  for  him  to  keep  his  personal  account  in  it. 
The  pecuniary  relations  of  the  president,  also,  toward  his  bank  were 
the  same.  This  is  no  longer  the  case.  The  cashier  is  usually  a  stock- 
holder, and  often  a  director.  Under  the  national  banking  system, 
whereby  personal  liability  to  the  amount  of  the  stock  is  borne  by  every- 
one, if  the  cashier  owns  stock  he  is  supposed  to  be  more  interested 
in  the  success  of  the  bank  than  if  he  had  no  pecuniary  interest. 

The  cashier  is  appointed  by  the  directors.  He  gives  a  bond  for  ten 
thousand  or  twenty  thousand  dollars  for  the  faithful  performance  of 
the  duties  of  his  office,  and  which  is  signed  by  two  sureties.  Each  clerk 
also  gives  a  similar  bond,  and  usually  for  five  thousand  dollars.  These 
bonds  do  not  cover  losses  occasioned  by  misjudgment  or  neglect,  but 
only  fraudulent  transactions.  The  requirement  would  be  unreasonable 
to  hold  tliese  officials  liable  for  losses  of  every  kind. 

The  bondsmen  are  men  of  character  and  wealth.  Their  names  are 
sul^mitted  to  the  board  of  directors,  or  more  generally  to  the  officers, 
for  the  purpose  of  making  whatever  investigation  may  be  needful. 
If  they  do  not  approve  of  those  offered,  others  must  be  procured.  Tn 
the  eA'ent  of  a  loss,  which  the  bondsmen  must  pay,  it  is  divided  among 
them  equally. 

When  an  official  has  been  promoted  he  must  give  another  bond,  as 
the  existing  one  does  not  protect  the  bank  in  the  event  of  a  fraudulent 
loss  occasioned  by  him  after  his  promotion.  Recently,  several  cases 
have  come  to  light  of  negligence  on  the  part  of  directors  in  not  pro- 
curing new  bonds  after  making  promotions.  Frauds  were  discovered, 
the  bondsmen  were  sued,  but  the  courts  decided  that  the  bonds  given 
simply  related  to  the  conduct  of  the  principals  when  holding  the 
offices  named  in  the  instruments. 

Such  a  consequence  of  promoting  an  official  may  be  averted,  even 
though  a  new  bond  be  not  given,  by  inserting  a  clause  in  an  official's 
bond  binding  the  surety  not  only  for  the  losses  resulting  from  any 
misdeeds  of  the  official  while  serving  in  a  specified  capacity,  but  also 
when  performing  any  other  duties  to  wliicli,  in  the  employer's  service, 
he  may  be  subsequently  appointed  or  assigned  by  the  employer. 

The  following  form  of  bond  covers  many  contingencies: 

Iknow  all  men  \)>q  tbese  presents,  That  we 


are   held   and   firmly  l>ound    unto   the   Arctic  National   Bank   of   Phil- 
adelphia,  in  the  sum  of Dollars,   to  which  payment 

well  and  truly  to  be  made,  AVe  bind  ourselves,  our  Heirs,  E.xecutors, 


THE  CASHIER.  137 

and  Adiiiinistrators,   Jointly  and   Severally,   firudy  by  llu'so  presents. 

Sealed  with  our  seals.    Dated  the day  of in  the 

year  of  our  Lord  one  thousand  eight  hundred  and 

Whereas,  the  above  named has  been  duly 

appointed  a in  the  Arctie  National  Bank  of  Phila- 
delphia.   Now  tile  condition  of  this  obligation  is  such,  tliat  if  the  said 

shall,  for,  and  during  the  time  of  his  employment 

by  the  said  Bank,  whether  under  the  present  Charter,  or  any  renewal 
or  extension  thei'eof,  fulfill  with  integrity  and  fidelity  the  trust  thereby 
reposed  in  him  and  faithfully  execute  the  duties  and  services  in  the 
said  Bank,  which  shall  from  time  to  time  be  required  of  him  by  the 
Board  of  Directors  of  the  said  Bank,  or  the  President  or  Cashier 
thereof,  or  by  or  under  their  authority,  and  well  and  faithfully  fulfill 
all  the  trusts  that  shall  be  by  them  or  by  or  under  their  authority  in 

him  reposed,  as  well  as  his  said  appointment  of as  in  any 

otlier  capacity  or  employment  in  or  concerning  the  said  Bank  to  which 
he  may  hereafter  be  transferred  or  appointed  by  said  Board  of  Direct- 
ors, or  President  or  Cashier  of  said  Bank,  or  by  or  under  their  authority, 
then  tliis  obligation  to  be  void,  otherwise  to  remain  in  full  force  and 
virtue. 

Sealed  and  delivered 
in  tlie  presence  of 

(L.   S.) 

(L.   S.) 

(L.   S.) 

Formerly,  the  sureties  on  bonds  were  individuals.  Now,  companies 
exist  for  the  purpose,  possessing  a  large  capital,  who  relieve  indi- 
viduals from  this  unwelcome  service.  Their  compensation  is  graded 
by  the  amount  of  the  bond;  and  as  they  are  incorporated,  are  pre- 
ferred by  banks  to  individuals.  Individuals  fail  and  die;  surety  or 
guarantee  companies  possess  a  more  enduring  life.  Besides,  before 
incurring  this  lial)ility,  they  thoroughly  examine  into  the  character  of 
the  applicant  and  thus  assure  themselves  of  his  worthiness  independ- 
entlj'  of  that  implied  by  his  position.  Moreover,  his  subsequent  career 
is  watched,  and  if  they  learn  of  his  departure  from  proper  ways,  they 
are  unwilling  to  continue  to  act  as  his  surety,  and  this  is  a  loud  notice 
to  the  bank  to  talce  some  action  touching  his  reformation  or  removal. 

The  practice  is  becoming  quite  general  for  banks  to  pay  the  cost  of 
all  the  bonds  required,  which,  at  present,  is  about  forty  cents  per 
thousand  dollars.* 

Although  the  cashier  is  appointed  by  the  board  of  directors,  and  is 


*Au  excellent  paper  on  (Corporate  \.  Individual  Bonds,  by  .John  W. 
Faxon,  assistant  cashier  of  the  First  National  B.iiik  of  Cliattanooga, 
may  be  found  in  the  proceedings  of  Tennessee  Banlcers'  Association, 
1804,  p.  7G, 


138  PRACTICAL  BANKING. 

amenable  to  them  and  within  their  power  of  removal,  he  is  also  the 
representative  of  the  stocliholders.  If,  therefore,  the  president  or 
directors  should  attempt  to  use  the  funds  of  the  banli  in  an  illegal 
manner,  it  would  be  the  duty  of  the  cashier  to  prevent  them  from 
doing  so  if  possible.  His  salary,  and  also  that  of  the  president,  is 
varied  by  the  duties  and  responsibilities  assumed.  In  the  larger  banks 
the  president,  when  he  is  the  real  manager,  gets  from  five  to  fifteen 
thousand  dollars  a  year,  and  the  cashier  from  five  to  ten  thousand 
dollars.  The  country  banlvs  pay.  perhaps,  half  these  figures.  These, 
however,  are  only  crude  approximations  of  the  remuneration  received. 

As  the  cashier  is  the  ostensible  executive  officer  of  a  bank,  he  is  pre- 
sumed to  have,  in  the  absence  of  positive  restrictions,  all  the  power 
necessary  to  transact  its  business.  Thus,  in  the  absence  of  restrictions, 
if  he  should  procure  a  bona  fide  rediscount  of  any  paper  of  the  bank, 
his  endorsement  would  bind  it,  because  he  has  the  implied  power  to 
transact  such  business.  But  he  could  not,  by  virtue  of  his  official 
relation  to  his  bank,  bind  it  as  an  accommodation  endorser  of  his  own 
promissory  note.  Such  a  transaction  would  not  be  within  the  scope 
of  his  general  powers,  and  if  a  person  should  accept  an  endorsement 
of  that  nature  he  could  not  recover  of  the  bank,  in  case  the  note  was 
not  paid,  without  proving  that  it  specially  authorized  the  cashier  to 
make  the  endorsement.  There  is  no  presumption  in  favor  of  the  dele- 
gation of  such  a  power.* 

One  of  the  first  duties  on  reaching  the  bank  in  the  morning  is  to 
attend  to  the  correspondence.  In  some  of  the  New  York  City  banlvS 
this  is  very  extensive.  Formerly  the  letters  were  opened  by  the 
cashier,  but  now  they  are  given  to  clerks  appointed  for  that  purpose. 
The  letters  containing  cash  items  are  retained  by  the  tellers.  Those 
which  must  be  answered  by  the  cashier  himself  are  termed  "special 
letters,"  and  are  laid  on  his  desk  in  the  eai'ly  part  of  the  morning. 
These  may  be  applications  for  discounts,  proposals  from  new  cus- 
tomers, orders  for  the  purchase  or  sale  of  stoclvs  and  bonds,  letters 
asking  for  advice  concerning  the  standing  of  persons,  opinions  con- 
cerning the  worth  of  certain  bonds  or  stocks,  or  complaints  concerning 
the  conduct  of  the  business  of  the  bank.  The  answers  are  copied  in  a 
book  kept  for  that  purpose. 

The  number  of  letters  daily  received  by  a  bank  having  a  large  cor- 
respondence may  be  from  two  hundred  to  two  thousand.  Most  of  them 
are  formal,  containing  a  statement  of  enclosures,  and  can  be  easily 
answered.  Printed  forms  are  used  in  most  cases  both  in  sending  such 
enclosures,  and  in  acknowledging  their  receipt.  Mere  acknowledg- 
ments are  not  usually  copied. 

All  the  cliecks  received  in  the  morning  letters  whicli  can  be  sent  to 


*Sre  the  opinion  of  ("h.  .1.  Waite  In  Savings  Bank  v,  Parmelee,  U, 
S.   Supreme   Court,   1877. 


THE   CASHIER.  139 

the  clearing-house  are  put  iu  the  package  which  is  to  be  sent  there, 
as  will  be  explained  hereafter.  The  amount  thus  received  daily  in 
some  cases  is  very  large,  running  into  the  millions. 

A  cashier  of  one  of  the  best-conducted  baulis  in  New  Yorlj  City  has 
thus  described  the  usual  daily  rt)utiue  of  his  business.  After  ex- 
amining a  dozen  papers  to  whicli  the  bank  subscribes,  he  looks  around 
to  see  that  all  the  clerks  are  on  hand  and  are  preparing  the  exchanges 
for  the  clearing-house.  By  a  few  glances  he  can  tell  whether  the  work 
is  progressing  satisfactorily.  If  a  vacant  place  is  seen,  then  it  is  pre- 
sumed tliat  a  clerk  is  absent,  and  somebody  must  be  found  to  supply 
his  place.  In  the  morning,  almost  all  the  clerks,  except  the  book- 
keepers and  the  heads  of  the  departments,  are  engaged  in  preparing 
the  exchanges.  In  that  bank  the  letters  are  so  numerous  that  a  large 
force  is  necessary  in  order  to  get  the  exchanges  ready  iu  time,  and  a 
vacailcy  must  be  speedily  filled  if  possible.  Sometimes  he  is  obliged 
to  assist  himself.  If  a  clerk  does  not  appear  within  ten  minutes  past 
nine  he  is  regarded  late. 

The  special  letters  are  brought  to  the  cashier,  and  those  requiring 
immediate  attention  are  answered  at  once;  others  at  a  more  con- 
venient time.  Then  letters  containing  remittances  are  brought  in  from 
the  bookkeepers.  Those  requiring  special  attention  are  laid  on  one 
side,  and  the  instructions  they  contain  are  entered  in  a  special  letter 
book  for  the  use  of  the  corresponding  clerk.  For  example,  if  an  advice 
concerning  a  payment  is  requested,  it  is  the  duty  of  the  corresponding 
clerk  to  make  the  necessary  advice.  The  last  duty  which  the  latter 
performs  in  the  day  is  to  examine  his  special  letter  book,  for  the  pur- 
pose of  assuring  himself  that  all  letters  requiring  special  attention  on 
his  part  have  been  answered. 

When  the  directors  meet,  as  we  have  seen,  the  cashier  meets  with 
them.  Besides,  he  examines  loans  securd  by  collateral,  to  reassure 
himself  of  the  sufficiency  of  the  security,  or  perhaps  with  a  view  of 
calling  the  loan,  if  the  collateral  that  is  securing  payment  be  of  a 
kind  which  the  banli  does  not  wish  to  hold  longer.  He  also  examines 
the  bnlance  books  and  directs  all  tlie  detail  of  the  banlc,  keeping  liim- 
self  informed  concerning  the  business  done.  Such  are  the  leading 
features  of  his  daily  business,  interspersed  with  frequent  calls  and 
interruptions.  The  afternoon  hours  are  not  so  pressing,  and  the  duties 
are  more  varied. 

When  the  money  market  is  "easy,"  the  duties  of  a  cashier  are  very 
agreeable.  The  departments  of  the  l)ank  move  along  harmoniously. 
The  dealers  call  and  transact  their  business  and  go  away  in  good 
humor.  If  they  want  to  get  notes  discounted  this  is  done  promptly. 
Very  often  social  topics  are  pleasantly  l)k'nded  wilh  their  nego- 
tiations. But  when  the  market  sliows  signs  of  tightening,  tlien 
these  pleasant  daily  scenes  are  quickly  changed.    The  amount  of  paper 


140  PI?ACTICAL  BANKINO. 

offered  for  discouut  is  suddenly  doubled,  aud  the  amouut  discounted  is 
reduced  one-half.  Merchants  are  not  satisfied  with  their  usual 
preparations  for  future  payments.  They  are  determined  to  get  more 
ready  money,  if  possible,  and  eagerly  demand  more  loans.  These  are 
the  times  that  test  the  ability  of  the  banli  manager,  and  which  prove 
his  fitness  or  unfitness  for  his  position. 

One  of  the  duties  of  a  cashier  is  to  increase  in  every  proper  way 
the  business  of  the  bank.  The  banking  business  in  this  respect  does 
not  differ  from  any  other.  The  profits  in  the  business  in  most  banks 
are  made  on  the  deposits.  To  increase  these,  therefore,  is  the  am- 
bition of  all  concerned  in  the  enterprise,  and  especially  of  those  who 
are  the  most  active  and  responsible  in  its  management.  New  accounts 
are  eagerly  sought.  While,  however,  this  is  true,  no  well-conducted 
bank  will  blindly  open  an  account  with  any  person.  He  must  be 
properly  identified  and  introduced,  and  his  character  must  be  ascer- 
tained. Some  banks  will  not  take  the  accounts  of  persons  inti'oduced 
by  a  clerk  of  their  own,  for  the  reason  that  it  is  possible  for  him  to  be 
a  confederate  in  some  plan  Avith  the  introducer  to  defraud  the  bank. 
The  clerk  might  be  enabled  to  give  him  a  fictitious  credit  or  in  some 
way  assist  him  in  defrauding  the  institution.  If,  therefore,  a  clerk 
should  introduce  a  customer,  an  additional  introduction  would  also  be 
required.  If  he  were  a  merchant,  the  introduction  of  another  mer- 
chant would  be  needful.  If  the  applicant  were  not  engaged  in  busi- 
ness, he  might  present  such  facts  as  would  satisfy  the  cashier  con- 
cerning his  worthiness  without  further  investigation.  If  the  cashier 
should  decide  to  open  an  account  with  him,  he  would  be  required  to 
sign  his  name  in  a  book  kept  for  that  purpose.  All  that  the  applicant 
has  said  concerning  himself,  and  whatever  can  be  found  out  about  him 
afterward,  is  recorded  in  a  book  which  has  been  already  described. 

It  is  not  possible  for  the  cashier  to  supervise  the  books  of  a  bank 
personally,  but  he  should  look  at  them  frequently  enough  to  satisfy 
himself  of  their  correctness.  Clerks  sometimes  get  careless  and 
negligent,  and  may  carry  over  their  work  from  day  to  day,  or  portions 
of  it,  if  they  are  not  watched.  A  supervision  of  this  kind  is  needed  in 
order  to  maintain  the  best  discipline.  "Without  it,  clerks  too  often  be- 
come careless  and  inattentive  and  delay  their  work  in  various  ways. 
A  cashier  should  have  an  intimate  knowledge  of  the  theory  of  ac- 
counting maintained  by  his  bank,  so  that  when  he  examines  any  book 
ho  will  be  able  at  once  to  understand  it.  We  do  not  suppose  that 
every  bank  has  such  a  cashier,  but  unquestionably  it  should  have. 
Bank-booking  is  generally  quite  simple,  and  no  very  high  order  of 
ability  is  required  to  master  it.  r>anks  differ  from  one  another  in 
many  details  of  doing  business,  but  in  no  case  are  these  difficult  to 
comprehend. 


THE  PAYING  TELLER.  141 


CHAPTER     XI. 
THE  PAYIXd  TELLER. 

Next  in  importance  to  the  duties  of  the  cashier  are  those  of  the 
paying  teller.  He  is  frequently  called  the  first  teller,  and  whenever 
the  cashier  is  promoted,  the  paying  teller  usually  succeeds  to  his 
place.  It  is  sometimes  maintained,  however,  that  the  general  book- 
keeper and  the  corresponding  clerk  ought  to  have  an  equally  good 
chance  for  the  office. 

The  paying  teller  receives  a  higher  salary  than  any  other  clerk,  and 
the  general  bookkeeper  the  next  highest.  The  paying  teller's  salary 
is  larger,  because  he  is  trusted  with  more  funds,  and  because  the  re- 
sponsibility put  on  him  to  scrutinize  signatures  and  to  pay  money  is 
peculiar  and  very  great. 

To  him  is  committed  the  custody  and  disbursement  of  the  funds  of 
the  bank.  The  amount  of  money  in  his  keeping  in  a  large  bank  may 
amount  to  several  millions  of  dollars.  In  such  a  bank  several  apart- 
ments in  the  vault  are  appropriated  to  his  exclusive  use.  A  cashier 
said  to  the  writer  not  long  since  that  in  his  banlc  an  average 
amount  of  two  million  dollars  was  kept.  The  responsibility  of  keeping 
it  was  too  great  for  one  man.  The  vault  where  it  was  kept  was 
divided  into  compartments.  The  paying  teller  had  three,  the  receiving 
teller  one,  the  note  teller  one,  the  collection  clerk  one,  the  discount 
clerk  one,  and  the  loan  clerk  two,  and  one  was  assigned  to  the 
cashier.  Two  locks  were  placed  on  each  of  two  of  the  three  com- 
partments assigned  to  the  paying  teller.  The  combination  of  one  lock 
was  known  only  to  the  cqshier,  and  the  combination  of  the  other  only 
to  the  paying  teller.  Consequently  neither  person  could  open  the  com- 
partments without  the  knowledge  of  the  other.  In  these  compartments 
was  kept  the  greater  part  of  the  reserve  of  the  bank.  In  the  third 
compartment,  which  had  only  one  lock,  the  paying  teller  kept  the 
balance  of  his  cash,  which  changed  from  day  to  day,  and  which  neces- 
sarily must  be  under  his  control.  The  cashier  knew  every  combination 
except  those  of  the  paying  teller. 

The  paying  teller  is  therefore  the  sole  guardian  of  his  cash.  Nobody 
ever  thinks  of  invading  his  compartments;  but  there  are  times  when 
this   may  be   necessary.    He   may  be  taken   sick,   and   in   that   event 


142  PRACTICAL   BANKING. 

another  person  must  open  the  compartments  to  get  the  funds  for 
carrying  on  the  business  of  the  bank.  There  are  times,  too,  when 
investigations  are  made,  annually  or  otherwise,  all  the  compartments 
are  opened,  and  their  contents  are  examined.  But,  except  on  such 
occasions,  or  when  fraud  is  suspected,  the  teller's  compartments  are 
not  opened  unless  he  is  present.  The  reader  can  well  understand  why 
such  strictness  prevails.  If  the  cashier  were  accustomed  to  going  to 
them,  if  any  loss  should  occur,  it  might  be  very  difficult  to  trace.  The 
paying  teller,  therefore,  has  sole  charge  of  his  compartments,  and 
alone  is  responsible  when  losses  arise. 

Having  unlocked  his  compartments,  the  porter  assists  him,  if  neces 
sary,  in  carrying  to  his  deslc  the  money  which  is  likely  to  be  wanted 
during  the  day.  His  compartment  is  then  locked,  and  he  returns  to 
his  desk. 

The  different  kinds  of  money  paid  by  him  are  familiar  to  every  one. 
It  consists  principally  of  United  States  notes  and  national  bank  notes. 
The  former  are  issued  by  the  Government,  and  are  more  frequently 
called  "greenbacks;"  the  latter  notes  are  made  by  the  banks  them- 
selves. Then  there  is  coin,— gold,  silver— "the  dollar  of  the  daddies,"— 
and  minor  coins.  Silver  certificates  are  also  paid,  and  less  frequently 
gold  certificates.  They  represent  the  amount  of  gold  or  silver  specified 
on  their  face  in  the  possession  of  the  Treasury  Department,  and  which 
can  always  be  obtained  by  presenting  these  certificates  to  the  United 
States  Treasurer  at  Washington,  or  to  any  assistant  treasurer.  To 
facilitate  payments,  the  money  drawer  is  divided  into  sections  which 
contain  notes  of  different  denominations.  A  package  of  fives  contains 
two  hundred  and  fifty  dollars.  A  package  of  tens  five  hundred  dollars. 
A  package  of  twenties  one  thousand  dollars.  There  are  other  packages 
for  varying  amounts.  When  a  check  is  presented  for  the  amount  of 
any  packet,  it  is  delivered  without  recounting.  For  intermediate 
amounts,  of  course,  the  packets  must  be  opened. 

All  payments  of  money  are  made  by  one  teller;  consequently  all  the 
exchanges  sent  to  the  Clearing-house  must  appear  in  his  accounts.  It 
may  be  stated  here  that  this  is  composed  of  the  checks  on  other  banks 
taken  on  deposit,  and  also  those  which  are  received  in  letters  from 
other  banks.  Formerly,  it  was  the  duty  of  the  paying  teller  to  re- 
ceive the  exchanges  in  the  morning,  and  to  prepare  them  for  the 
Clearing-house.  This,  however,  is  now  the  duty  of  the  third  teller, 
though  sometimes  performed  by  the  second  or  receiving  teller.  In 
the  largest  banks  the  business,  of  course,  is  more  subdivided  than  in 
the  smaller  ones.  But  in  all  cases  the  exchanges,  by  whomsoever  pre 
pared,  are  charged  to  the  first  teller.  On  this  topic  more  will  be  said 
hereafter. 

At  ten  precisely  (the  hour  is  nine  in  some  locations),  the  teller  is  ready 
for  the  business  of  the  day,  which  consists  in  paying  checks  of  depositors 


THK  PAYING  TELLER.  143 

of  tlie  bank.  The  object  of  a  clieck  is  so  plain,  and  the  words  used  are  so 
few  that  one  would  tliink  there  could  not  be  much  diversity  in  its  form, 
but  through  the  ingenuity  of  stationers  and  the  eccentricity  of  bookkeep- 
ers many  varieties  have  been  produced,  which,  if  not  pleasing,  display 
their  power  of  invention. 

Perhaps  nothing  should  be  said  concerning  the  shape  of  the  in- 
strument, lest  some  oddly  constituted  mind  be  tempted  to  produce  an 
oval,  or  perhaps-  a  polygonal  variety.  With  respect  to  the  size  of 
a  check  or  draft,  8-2x3^  inches  is  the  most  convenient,  giving  room 
enough  for  the  necessary  words.  There  seems  to  be  a  prevailing 
notion  that  the  check  of-  one  bank  on  another  should  be  unusually 
large,  though  the  increase  of  dimensions  does  not  seem  to  be  based 
on  any  ratio  of  capital.  Sometimes  very  small  banks  have  their  New 
York  elieok  of  the  mo.st  ample  proportions.  Private  banking  houses 
occasionally  indulge  in  this  method  of  asserting  their  importance,  and 
even  some  mercantile  firms  have  followed  at  a  tolerably  respectful 
distance.  The  size  mentioned  above  has  been  adopted  by  the  American 
Bankers  Association  and  recommended  for  general  use  to  secure  uniform- 
ity as  nearly  as  pos.sible. 

Passing  from  their  size  we  are  bewildered  by  the  various  hues, 
red,  orange,  yellow,  green,  blue,  indigo,  and  violet,  with  a  choice 
variety  of  contrasting  and  non-contrasting  colors.  Sometimes  on  the 
small  blank  that  is  left  for  the  numbers  is  printed  a  light  impression 
of  black,  which  certainly  contrasts  nicely  with  the  black  ink  written 
upon  it.  The  proper  color  for  every  business  paper  is  a  plain  white  with 
black  ink;  or  to  put  the  matter  in  the  language  of  art,  a  bank  check 
should  be  a  simple  study  in  black  and  white,  however  it  is  quite  common 
among  banks  now  to  have  their  checks  and  drafts  made  on  colored  safety 
paper  and  printed  in  black  ink.  This  is  a  safeguard  which  every  bank 
would  do  well  to  adopt.  The  best  safety  paper  is  that  with  a  white  body 
and  a  colored  wave  surface;  it  is  claimed  for  this  paper  that  it  has  never 
been  successfully  altered.  The  protection  afforded  by  its  use  is  certainly 
worth  several  times  its  small  additional  cost  over  white  pajjer. 

It  is  in  the  ornamenting,  however,  that  Imagination  runs  riot.  A 
very,  very  little  is  in  good  taste;  the  rest  is  quite  out  of  place.  Some 
insist  on  making  their  check  an  advertising  medium,  while  that  of 
others  looks  like  a  page  taken  from  an  illustrated  weekly.  On  some 
checks  words  are  actually  printed  over  each  other  so  that  the  decipher- 
ing is  like  solving  a  rebus.  On  some,  we  are  favored  with  fancy 
vignettes  of  the  human  face  divine;  on  others,  real  vignettes  of  human 
faces  which  are  qtiite  the  i-everse.  Plainness  and  simplicity,  freedom 
from  ornamentation,  and  as  little  wording  as  possible,  are  essential 
elements  of  business  paper.* 

Bank  checks  are  orders  for  the  payment  of  money,  and  are  payable 


♦See  Underwood's  Reporter,  Dec.  22,  1883. 


144  PRACTICAL  BANKING. 

in  the  order  of  presentation,  and  not  the  order  in  which  they  are  drawn. 
They  do  not  constitute  payment  of  the  indebtedness  for  which  they 
are  given  until  paid,  except  by  special  agreement.  Nor  does  the  con- 
current receipting  of  the  debt  for  which  they  are  given  change  the 
rule,  and  if  they  are  not  paid  on  presentation  the  holder  may  resort  to 
the  original  claims  for  which  they  were  given. 

Checks  should  be  dated.  If  they  are  not,  and  do  not  contain  any 
statement  Avhen  they  are  to  be  paid,  they  are  never  payable.  They 
may  be  ante  or  post-dated,  and  dated  also  on  the  day  of  delivery. 
Post-dating,  in  the  main,  determines  the  date  of  payment.  When  post- 
dated on  Sunday,  they  are  payable  on  the  following  Monday.  Checks 
post-dated,  or  maturing  on  legal  holidays,  should  be  presented  the  day 
following.  When  post-dated  checks  are  paid  before  the  dates  men- 
tioned, the  money  paid  on  them  can  be  recovered.  If  blanks  are  left 
for  the  dates,  the  holders  of  the  checks  are  thereby  authorized  to 
insert  the  true  dates  of  delivery,  but  no  others. 

The  presumption  is  that  when  checks  are  drawn,  funds  will  be 
provided  at  the  drawee  bank  to  meet  them;  but  presentation  for  pay- 
ment must  be  made  within  a  reasonable  time.  If  not  so  presented  the 
holders  will  be  charged  with  any  consequent  loss.  Where  persons 
receiving  checks  and  the  banks  on  which  they  are  drawn  are  in  the 
same  place,  they  should  be  presented  the  same  day  or  the  next  after 
they  are  received.  Where  they  are  in  different  places  the  checks  must 
be  mailed  to  some  bank  or  person  at  the  place  where  payable  before 
the  close  of  the  day  following  their  receipt,  and  the  latter  must  present 
them  before  the  close  of  banking  hours  on  the  day  following  their 
receipt.  No  extra  time  will  be  gained  by  holders  by  depositing  checks 
in  their  own  banks  for  collection.  After  duly  presenting  them,  it  is  also 
the  duty  of  the  holders,  if  they  are  not  paid,  to  notify  the  drawers 
before  the  close  of  the  next  secular  day  following  their  presentation 
and  dishonor. 

No  particular  form  of  notice  is  required.  It  may  be  written  or 
verbal.  The  principal  cases  in  which  losses  occur  from  failui'e  to  use 
diligence  in  the  collection  of  checks  are  those  through  failure  of  the 
banks  on  which  they  are  drawn.  Presentation  and  notice  of  dishonor 
need  not  be  made  whenever  there  are  no  funds  to  pay  checks,  and  also 
when  the  banks  on  which  they  are  drawn  suspend  payment  before 
they  can  be  presented  by  using  proper  dili;,'ence. 

When  checks  are  negotiable  and  pass  by  endorsement  or  delivery, 
the  same  degree  of  diligence  will  be  required  of  each  person  to  whom 
they  are  endorsed,  in  order  to  hold  those  endorsing  them,  as  is  required 
of  original  payees  to  hold  original  drawers  of  checks.  But  by  putting 
checks  in  circulation,  the  liability  of  the  drawers  cannot  be  prolonged. 
They  must  be  presented  within  the  same  time  by  endorsees  as  by 
payees. 


THE   PAYING   TELLER.  145 

The  delivery  of  a  check  does  not  operate  as  an  assignment  of  the 
drawer's  deposit,  to  the  amount  therein  specified,  until  it  has  been 
presented  for  payment.  This  is  the  rule  in  all  the  states  except  Illinois, 
Missouri.  South  Carolina  and  Texas.  But  if  a  check  is  drawn  for  the 
entire  amount  of  a  deposit,  in  equity,  the  check  does  have  the  effect  of 
assigning  the  deposit  to  the  payee.  Yet  a  layman  may  wonder  why  a 
check  given  for  a  portion  of  a  deposit  should  differ  in  effect  from  a 
check  given  for  the  whole.  Whatever  may  l»e  the  reason  or  lack  of 
reason  for  the  distinction,  it  is  the  law.  It  follows  that,  in  those  states 
where  a  check  has  the  effect  of  assigning  the  maker's  deposit,  the 
holder  has  a  better  title  than  an  attaching  creditor  of  the  maker,  and 
the  bank  is  safe  in  paying  over  to  him  the  amount  specified  in  the 
check.  But  it  would  not  be  said  in  those  states  where  the  rule  still 
prevails  that  the  giving  of  a  check  does  not  transfer  ownership  of  a 
deposit  until  it  is  presented  for  payment. 

Who  should  sign  the  checks  of  corporations  must  be  determined 
by  state  laws,  by  charters,  by-laws,  or  by  the  usage  of  particular  corpo- 
rations. Every  partner  has  the  right  to  sign  his  firm's  name  to  checks 
unless  prohibited  by  its  articles  of  copartnership.  So  also  can  agents 
sign  them,  when  they  are  given  express  or  implied  authority. 

As  a  check  is  the  depositor's  order  or  direction  concerning  the  pay- 
ment of  his  money,  it  should  be  signed  in  proper  form.  A  depositor 
ought  to  sign  his  name  in  the  same  manner  always,  so  that  the  paying 
teller  can  become  familiar  with  it  and  thereby  lessen  his  risk  of  paying 
forged  check.  We  knew  a  person  having  a  long  name,  who  had  not 
the  patience  to  sign  more  than  about  half  of  it,  and  usually  with  a  lead 
pencil.  He  was  a  very  large  depositor  and  the  bank  honored  his 
checks.  Furthermore,  his  writing  was  so  peculiar  that  it  would  have 
been  especially  difficult  to  forge  his  name.  But  when  he  came 
to  the  bank  the  checks  that  had  been  presented  and  paid  were  always 
given  to  him  for  the  completion  of  his  signature.  Occasionally  he 
would  demur,  but  the  bank  was  mexorable  and  insisted  that  he  must 
do  this  for  its  own  protection.  Signatures  to  checks  must  be  written 
with  pen  and  ink  or  pencil;  they  may  also  be  printed  or  stamped. 
Sometimes  the  representatives  of  corporations  are  neglectful  to  draw 
them  in  proper  form.  The  proper  way  is  to  sign  the  name  of  the 
corporation,  for  example,  "Atlantic  Printing  Company,  by  John  Smith, 
Treasurer."  In  other  woi'ds,  the  company  name  should  be  signed,  so 
that  the  bank  officer  may  know  to  whom  it  should  be  charged,  and 
then  the  name  and  the  office  of  the  person  signing  that  of  the  company. 
For  a  person  simply  to  sign  hims(>lf  treasurer  or  agent,  signifies  noth- 
ing, and  even  if  a  bank  understood  tlic  meaning  of  the  signature,  it 
would  be  defective  and  ought  not  to  be  permitted.  We  suppose,  how- 
ever, that  there  are  cases  in  which  checks  are  signed  in  this  short 
10      . 


146  PRACTICAL   BANKING. 

method,  the  bank  on  which  they  are  drawn  understanding  the  signifi- 
cance of  the  signature. 

In  a  large  baul^  a  paying  teller  has  but  little  time  to  look  at  signa- 
tures, and  his  task  therefore  is  a  most  responsible  one.  The  wonder  is 
that  more  forged  checks  are  not  presented  and  passed  through  his 
hands.  Considering  the  large  number  of  checks  annually  presented  to 
the  different  banks  of  the  country  for  payment,  the  number  of  forgeries 
is  not  very  great. 

Sometimes  some  designation  is  added  to  a  man's  name,  as  agent, 
treasurer,  trustee.  In  one  of  the  cases  that  arose  for  discussion  the 
signer  added  Tr.  The  court  remarked  that  the  addition  of  such  words 
without  a  more  specific  description  of  their  significance  are  meaning- 
less, and  the  checks  as  given  simply  by  a  person  individually.  The 
words  are  merely  an  additional  description  of  the  signer's  character, 
nothing  more. 

As  usually  drawn,  checks  payable  to  persons  Avho  are  named,  or 
order,  are  negotiable.  A  valua))le  consideration  for  them  will  be  pre- 
sumed. They  may  be  transferred  by  endorsement,  or,  if  payable  to 
bearer,  by  mere  delivery.  And  defenses  to  them  existing  between  the 
original  parties  cannot  be  raised  against  subsequent  holders.  It  is  a 
good  rule  when  drawing  a  check  on  a  bank  or  banker  to  make  it 
payable  to  the  order  of  an  individual,  firm  or  institution,  as  the  case 
may  be.  By  this  means  the  drawer  is  saved  from  the  risk  of  loss,  in 
case  the  holder  of  the  check  loses  it— a  risk  that  is  run  by  all  holders 
of  checks  payable  to  bearer. 

A  great  variety  of  checks  are  drawn  and  presented  for  payment. 
Every  check  requires  more  or  less  examiuati&n.  One  of  the  most 
common  defects  is  the  lack  of  a  proper  endorsement.  Checks  are  not 
Infrequently  given  to  persons  who  know  but  little  about  such  matters, 
and  who  forget  to  fulfill  this  requisite,  or  who,  perhaps,  are  ignorant 
of  the  fact  that  a  check  is  made  payable  to  their  order.  Sometimes 
checlvs  are  post-dated,  and  are  presented  for  payment  before  the 
time  fixed  by  the  drawex'S.  Sometimes  the  dates  are  altered,  and  the 
teller  must  be  satisfied  whether  the  alteration  is  material  or  not. 
Sometimes  a  check  is  drawn  for  a  larger  amount  than  the  depositor 
may  have  on  hand,  or  the  paying  teller  may  think  so,  and  it  is  neces- 
sary for  him  to  ask  the  bookkeeper  what  the  balance  of  the  depositor's 
accoimt  may  be  before  paying  it.  Many  irregularities  and  delays  and 
inquiries  may  arise  besides  those  mentioned. 

All  checks  that  have  passed  the  paying  teller's  examination  are 
given  to  a  clerk  for  entry  on  his  checli  list,  and  are  charged  to  their 
respective  accounts  in  the  ledger,  except  by  those  banks  which  use  the 
New  York  or  Boston  system  of  ledgers,  to  be  hereafter  explained,  in 
which  the  cheek  list  is  not  used. 

In  paying  checks  a  teller  must  think  of  three  things:    First,  is 


THE  PAYING  TELLER.  147 

the  signature  and  body  of  the  check  genuine;  second,  is  the  account 
of  the  drawer  good;  and,  third,  is  the  person  presenting  the  check 
entitled  to  receive  the  money.  The  paying  teller  must  also  satisfy 
himself  concerning  the  genuineness  of  the  endorsement  on  every 
check  presented  for  payment. 

As  is  well  known  a  bank  is  responsible  that  pays  the  check  of  a 
depositor  not  signed  by  him,  but  which  purported  to  have  been.  This 
rule  is  founded  on  justice,  though  it  is  often  costly  to  banking  institu 
tions.  When  a  depositor  confides  his  money  to  the  keeping  of  a  bank, 
it  expects  that  payment  will  be  made  only  on  his  order.  There  is  no 
third  person  or  intermediary  that  can  act  as  his  protector.  It  is  wholly 
witliiu  the  bank's  possession.  It  has  become  his  debtor  for  the  amount, 
and  it  is  responsible  to  him  therefor.  Consequently,  whenever  a  mis- 
take is  made,  it  must  pay  again. 

So,  too.  if  a  check  has  been  altered,  it  is  responsible,  for  it  dis- 
regards the  original  order.  The  maker  says  to  the  bank  originally, 
pay  my  check  so  and  so,  and  if  an  alteration  has  been  made,  which 
is  not  infrequent,  in  raising  the  amount,  the  check  is  then  not  the 
order  given  by  the  maker,  and  if  the  bank  pays  must  lose.  Many 
alterations  are  made  with  so  much  care  as  to  defy  detection  until 
after  the  most  minute  inquiry.  Names,  dates  and  amounts  are  often 
changed.  An  illustration  or  two  may  be  given.  A  person  in  New 
York  named  Crawford  left  a  check  with  his  bookkeeper  that  was  post- 
dated telling  him  when  the  day  arrived  to  draw  the  money  from  the 
bank  and  use  it  for  a  specified  purpose.  The  bookkeeper  changed  the 
date  to  one  day  earlier,  drew  the  money  on  that  date  and  departed  for 
parts  unknown.  Crawford  then  sued  the  bank  for  the  amount  of  the 
check  and  sought  to  recover  on  the  ground  that  it  had  not  fulfilled  his 
order,  but  had  paid  the  amount  one  daj'  earlier.  The  bank  contended 
that  if  the  bookkeeper  had  waited  one  day  longer  and  drawn  the 
amount  and  then  ran  away,  the  maker's  loss  would  have  been  the 
same.  He  assented  to  this,  but  replied  that  the  check  actually  paid 
was  not  the  one  drawn  bj'  him.  therefore  the  bank  must  stand  the  loss. 
The  court  decided  that  "in  disbursing  the  customer's  funds,  it  can 
pay  them  only  in  the  usual  course  of  business,  and  in  conformity  to 
his  directions.  In  debiting  his  account  it  is  not  entitled  to  charge 
any  payment  except  those  made  at  the  time  when,  to  the  person 
whom,  and  for  the  amount  authorized  by  him.  *  *  *  The  bank  is 
from  necessity  responsible  for  any  omission  to  discover  the  original 
terms  and  conditions  of  a  check,  once  properly  drawn  upon  it,  because 
at  the  time  of  payment,  it  is  the  only  party  interested  in  protecting 
its  integrity,  who  has  the  opportunity  of  Inspection,  and  it  therefore 
owes  tlie  duty  to  its  depositors  of  guarding  tlio  fund  intrusted  to  it 
from  spoliation.    *    *    *    The  liability  of  the  banker,  however,  for  a 


148  PRACTICAL  BANKING. 

loss  occasioned  1)y  noglect  to  exercise  such  vigilance,  is  confined  to  the 
maimer  alone." 

This  principle  has  a  broad  application.  It  applies  to  all  checlis  raised 
that  are  paid  by  a  bank.  It  is  responsible  for  the  loss,  the  difference 
between  the  amount  authorized  to  be  paid  and  the  amount  actually 
paid,  because  the  maker  has  limited  his  authority  to  the  smaller 
amount.  Whether  it  is  feasible  or  proper  to  make  any  regulation  on 
the  subject  of  raised  checks  is  a  question  well  worth  consideration. 

There  is,  however,  one  qualification.  The  maker  of  a  check  must 
be  careful  to  prepare  it  in  such  a  manner  as  to  make  an  alteration 
difficult.  If,  for  example,  a  person  wrote  twenty-five,  and  left  a  long 
space  between  five  and  dollars  so  that  hundred  could  easily  be  added, 
and  especially  if  he  omitted  to  put  in  the  figures  below,  such  a  check 
would  be  negligently  made;  and  if  some  person,  to  whom  it  was  trans- 
ferred, should  increase  the  amount,  a  bank  would  not  be  held  for  the 
excess  paid. 

Again,  if  a  space  was  left  after  a  name  so  that  a  person  could 
easily  v>'rite  bearer  and  thus  secure  its  circulation  without  indorse- 
ment, and  the  maker  should  suffer  in  consequence,  he  could  not  blame 
the  bank  for  paying  such  a  check.  Banks  are  often  careless  in  not 
remonstrating  with  their  customex's  on  their  loose  ways  of  drawing 
checks.  In  truth,  they  could,  by  using  proper  tact,  do  far  more  than 
they  are  in  the  habit  of  doing  in  requiring  their  customers  to  exercise 
more  care,  without  offending  them.  They  could  show  that  all  pre- 
cautions pertaining  to  the  proper  mode  of  filling  up  checks,  notes  and 
the  like  are  for  their  own  security  as  well  as  for  that  of  the  bank, 
and  a  customer,  instead  of  disliking  suggestions  coming  from  such 
a  source  and  intended  for  his  good,  ought  to  be  grateful  for  them,  and 
doubtless  would  be. 

Many  forged  checks  are  presented  and  paid.  It  is  one  of  the  terrors 
of  banking.  All  kinds  of  devices  have  been  invented  for  preventing 
forgeries.  Various  kinds  of  paper  have  been  tried.  The  use  of  green 
ink  on  the  United  States  and  national  bank  notes  was  to  render  their 
forgery  more  difficult.  And  indeed  it  has  proved  one  of  the  most 
effective  of  preventives.  Private  marks  in  signatures  are  sometimes 
used.  This  must  be  said,  however,  concerning  them:  If  a  forger  finds  out 
what  the  private  mark  is  and  successfully  counterfeits  it,  the  paying 
teller  is  more  likely  to  be  deceived  than  he  would  be  if  no  such  mark 
were  employed. 

One  of  the  universal  precautions  observed  l)y  banks  to  prevent 
forgeries  is  to  require  every  depositor  to  write  his  name  in  a  signature 
book  or  upon  a  signature  card.  With  this  the  paying  teller  compares 
doubtful  signatures.  Every  drawer  should  always  sign  his  name  in 
the  saini'  manner,  or,  if  vjiryiug  it,  should  acquaint  the  paying  teller 
with  the  variation. 


THE   PAYING   TELLER.  1  19 

SometiuK's  ;i  hauk  pays  a  flu'ck  on  whuli  the  uame  of  an  endorser 
has  been  forged,  and  the  amount  is  eharged  up  to  the  maker's  account. 
When  this  happens  the  bank  must  make  restitution.  One  of  the  most 
prominent  cases  of  the  kind  in  tliis  lountry  liappened  many  years  ago 
in  New  York  between  a  bank  in  A]l)any  and  one  in  that  vicinity. 
The  bank  of  Albany  received  A  draft  payable  to  the  order  of  B 
through  several  successive  endorsements,  B's  name  appearing  first 
among  the  numlter.  The  Bank  of  Albanj*  received  it  from  the  last 
endorsee  and  without  disclosing  his  uame  presented  it  to  the  Canal 
Bank,  on  which  it  was  drawn,  whicli  paid  the  amount.  Afterward 
the  Canal  Bank  ascertained  that  IVs  name  was  a  forgery  and  liaviug 
notified  the  Bank  of  Albany  of  this  fact,  it  sued  to  recover  tlie  money. 
The  court  decided  that  though  it  had  been  innocent  of  intended  wrong, 
yet  having  obtained  the  money  of  the  Canal  Bank  on  a  clieck  with  an 
imperfect  title  it  must  refund  the  amount.  Moreover,  it  was  required 
to  do  this  notwithstanding  the  delay  of  over  two  months  before 
giving  notice  of  the  forgery  after  the  Bank  of  Albany  had  received  the 
money  and  sent  the  same  to  the  person  from  whom  the  check  had 
been  received.  Several  principles  of  great  importance  were  decided  in 
this  case,  and  may  be  briefly  stated.  First,  only  the  payee  can  assert 
a  title  to  a  bill  or  note  payable  to  order  without  his  endorsement; 
second,  if  one  accept  a  draft  in  the  hands  of  a  bona  fide  holder  he 
will  not  be  allowed  to  dispute  the  genuineness  of  the  drawer's  signa- 
ture, though  he  may  that  of  the  endorsers,  and  payment  operates  in 
this  respect  the  same  as  on  acceptance;  third,  when  the  drawee  of  a 
draft  has  paid  it  to  an  innocent  holder  on  the  faith  of  a  forged  endorse- 
ment, mere  lapse  of  time,  however  long,  between  the  payment  and  the 
notice  of  the  forgery  will  not  deprive  him  of  the  right  of  recovering 
his  money  provided  he  has  incurred  no  unreasonable  delay  to  recover 
it  after  discovering  the  foi-gery;  fourth,  when  several  successive  en- 
dorsers have  advanced  money  on  a  draft  payable  to  order  .-uid  it  turns 
out  that  neither  had  a  title,  because  the  first  endorsement  was  a 
forgery,  he  may  recover  from  his  immediate  endorser. 

A  banking  firm  in  San  Francisco  have  the  following  rules  printed 
on  the  inside  of  the  front  cover  of  their  check  books  in  order  to 
impress  on  their  customers  the  importance  of  using  every  precaution 
against  fraudulent  alterations  or  forgery  of  checks: 

GITARD  AGAINST  FRAUD! 

Draw  all  your  checks  from  your  own  book. 

Nund)er  your  checks  in  regular  succession. 

Write  plainly.  Use  plenty  of  good  black  ink.  and  allow  it  to  pene- 
trate the  fiber  of  the  paper  before  blotting. 

Begin  writing  and  figures  close  to  left-hand  margin,  and  leave  no 
space  for  additions  or  alterations. 


150 


PRACTICAL   BANKING. 


90  I  80  I  70  I  60  I  50  I  40  I  30  |  20 


See  that  the  figures  correspond  with  the  body  of  the  check,  and 
that  dollars  are  plainly  separated  from  cents  thus:  §100 /g^^  or  $100-j^ 

Keep  this  check  book  in  your  safe  when  not  in  use. 

Deposit  your  pass  book  regularly  for  monthly  settlement.* 

To  guard  more  perfectly  against  raising  the  amount  the  following 
form  of  a  check  is  proposed: 

1,500 

1,400 

1.300 

1,200 

1,100 

1,000 

900 

800 

700 

600 

500 

400 

300 

200 

100 

00 


No.. 


Ph  iladelph  ia ,. 


.i8g^ 


ARCTIC  NA  TIONAL  BANK. 


Pay  to  the  order  of_ 


.Dollars. 


This  form  of  check  is  in  use  in  Germany.  They  might  be  prepared 
in  several  ways,  both  with  reference  to  the  amounts  and  to  cutting 
off  the  part  that  is  to  be  removed. 


*The  banks  in  Philadelphia  print  the  following  "Card"  in  the  in- 
side cover  of  their  pass  books: 

ARCTIC     NATIONAL     BANK. 

You  are  requested  to  make  your  deposits  in  the  bank  AS  EARIA'  IN 
THE  DAY  AS  YOU  CONVENIENTLY  CAN. 

IT  IS  RECOMMENDED,  for  your  safety  and  protection,  that  you 
have  ONE  PARTICULAR  PERSON  to  (.lo  your  business  at;  the  bank, 
who  shall  be  competent  to  take  charge  of  the  money  and  papers  you 
entrust  to  his  care,  and  sufficiently  intelligent  to  understand  and  prop- 
erly deliver  the  messages  and  explanations  you  may  have  occasion  to 
send.    Also, 

That  you  write,  or  stamp,  OVER  YOUR  ENDORSEMENT,  upon 
all  checks  which  you  send  to  be  deposited  to  your  credit  in  bank,  the 
words,  "PAY  TO  THE  ORDER  OF  ARCTIC  NATIONAL  BANK," 
which  will  prevent  their  being  used  for  any  other  purpose. 

IT  IS  RECOMMENDED,  that  you  keep  a  regular  check  book,  and 
not  suffer  it  to  be  seen  or  examined  by  those  who  have  no  right  so  to 
do — that  you  do  not  draw  a  check  upon  the  bank  except  it  be  tak^n 
from  YOUR  OWN  CHECK  BOOK— that  you  draw  AS  FEW  CHECKS 
AS  POSSIBLE— and  that  when  you  have  several  small  sums  to  pay 
away,  you  draw  ONE  CHECK  for  the  whole,  and  take  such  notes  and 
coins  as  will  enable  vou  to  distribute  the  amount  among  those  you  in- 
tend it  for.    DO  NOT  CIVE  YOFR  CHECK  TO  STRANGERS. 

In  case  you  should  have  a  form  of  chock  engraved  or  printed  for 
your  own  special  use.  it  is  recommended  that  you  carefully  keep  the 
engraved  plate  in  your  own  custody,  and  see  that  you  obtain  EVERY 
IMl'RKSSION  of  tlie  check  which  is  made  from  the  plate  or  the  type. 

It  is  desired  that  all  your  checks  for  large  amounts  should  be  pre- 


THE    PAYING   TELLER.  151 

The  second  iiuiuiry  is,  lias  the  drawer  a  sullieu'iit  deposit  to  pay 
the  clunk.  In  every  large  bank  several  hiiudred  depositors  transact 
business  \vith  it.  They  have  various  times  and  methods  of  depositing. 
Some  draw  many  checks  daily,  and  some  only  a  few,  or  at  rare  inter- 
vals. The  deposits  of  a  bank,  therefore,  are  constantly  varying  in 
amount.  How  then  can  a  paying  teller  recall  tlie  condition  of  every 
depositor's  account? 

Wt'  cannot  describe  how  a  paying  teller  perfornis  this  important 
part  of  his  work  ■•my  bctti'r  than  (Jibbons  has  done.  By  carefully 
examining  the  deposits  and  checks  of  a.  dealer,  it  is  easy  to  judge 
whether  they  are  the  proper  returns  from  his  business,  or  whether 
they  are  mostlj'  transfers  between  different  persons  and  accounts;  also 
to  what  extent  his  balances  are  maintained  by  loans  and  transient 
accommodations.  It  is  not  difficult  to  ascertain  whether  a  man  uses  his 
credit  excessively  or  with  prudence;  nor  to  get  information  of  his 
personal  habits,  associations,  and  general  character.  The  contact  of 
the  teller  with  merchants  in  all  branches  of  trade  affords  many  oppor- 
tunities of  inquiry  which,  with  those  in  possession  of  the  bank  officers, 
enable  him  to  classify  the  dealers,  and  thus  to  assist  his  memory. 

In  the  first  class  stand  those  of  known  large  capital,  who  never 
give  out  their  own  notes.  They  may  sell  on  credit,  but  they  always 
buy  for  cash.  Their  deposits  in  bank  are  generally  far  greater  than 
their  immediate  wants.    When  their  checks  are  presented,   the  teller 


sented  for  payment   liy  a  person  known  to  the  paying  teller  or  tlie 
officers  of  the  bank. 

IT  IS  PARTK  TLAliLY  REQUESTED,  in  case  you  desire  to  pre- 
serve your  CANCELED  CHECKS,  that  you  will  IMMEDIATELY 
DEFACE  OR  MUTILATE  YOUR  SKJXATI'RES,  in  such  manner  as 
will  TREVEXT  THEIR  BEING  COUIED;  and  that,  afterwards,  you 
will  put  the  checks  away  so  carefully  that  no  one  else  can  get  possession 
of  them. 

Attention  to  these  recommendations  and  suggestions  will  go  far  to 
secure  YOU  and  THE  BANK  from  ERRORS  and  LOSSES. 

NOTICE. 

In  conformity  with  the  rules  adopted  by  ALL  THE  BANKS  OF 
THIS  CITY,  members  of  the  Clearing-IIouse  Association,  you  are  hereby 
notified  that  you  are  held  responsible  as  endorser  for  the  non-payment 
of  all  CHECKS  upon  other  lianks  of  this  cily,  members  of  said  Asso- 
ciation, d('i)osited  by  you  as  CASH  in  this  bank,  until  Ihe  close  of  the 
business  day  next  succeeding  that  on  which  such  checks  are  depos- 
ited,—this  baidv  rec(>iving  such  checks  ONLY  FOR  COLLECTION  ON 
YOUR  ACCOUNT  through  the  exchanges  at  the  Clearing-House.  T^pon 
all  other  checks  and  draffs  dei)osited  l»y  you  as  cash,  your  responsibility 
as  endorser  continu(>s  until  payment  has  been  ascertained  l)y  this  bank. 
All  notes,  drafts,  checks,  coupons  or  acceptances,  discounted  or  received 
for  collection,  or  as  cash,  which  are  payable  at  points  outside  of  this 
Clearing-House,  will  be  received  upon  this  condition:  that  this  bank  is 
resixtnsible  only  for  good  f;iith  and  due  car(>  in  the  selection  of  such 
other  banks  or  agencies  as  are  employed  for  the  collection  of  such  items. 


152  PRACTICAL  BANKING. 

may  safely  pay  them  without  reference  to  the  condition  of  their 
accounts;  for  if  they  slioulcl  even  appear  overdraAvu  at  the  moment, 
he  knows  that  they  will  make  an  ample  deposit  before  the  close  of  the 
day.  In  addition  to  this,  they  are  likely  to  have  a  considerable  amount 
of  promissory  notes  lodged  in  the  bank  for  collection,  which  are  collat- 
eral security. 

The  middle  class  of  dealers  are  the  most  numerous.  Less  inde- 
pendent with  regard  to  capital,  and  relying  on  the  bank  for  loans, 
they  are  yet  generally  safe  and  trustworthy.  They  will  not  transgress 
its  rules,  lest  they  forfeit  its  confidence.  The  teller  pays  their  checks 
commonly  without  examining  their  accounts,  depending  ou  their  integ 
rity  and  self-interest  to  rectify  possible  errors  by  overdraft  or  other- 
wise. 

Next  come  the  retail  shopkeepers,  mechanics  and  small  manufac- 
turers. Many  of  this  class  keep  accumulating  accounts,  and  seldom 
call  for  loans;  or  if  so,  to  a  very  moderate  extent.  Separately,  their 
deposits  are  not  large,  but  in  the  aggregate,  they  add  materiallj"  to 
the  loaning  facilities  of  the  bank.  They  draw  but  few  checks,  and 
their  accounts  are  not  liable  to  sudden  changes.  The  teller  soon 
acquires  such  a  knowledge  of  them  as  to  remember  which  need 
watching;  and  the  bookkeepers  aid  him  in  this  by  an  alphabetical  list 
of  balances.  An  old  bank  gradually  expui'gates  its  ledgers  of  trouble- 
some accounts,  while  a  new  bank,  from  competition  for  business,  or 
non-acquaintance  with  the  character  of  dealers,  is  likely  to  fall  heir 
to  them. 

By  these  precautions  the  paying  teller  is  able  to  tell  what  checks 
ought  to  be  paid  and  what  ought  not  to  be.  Now  and  then  an  over-  ■ 
payment  is  made,  but  I'arely.  But  a  method  of  getting  money  from  a 
bank  is  sometimes  practiced,  which  though  illegal  is  successful.  Two 
persons  who  keep  accounts  in  different  banks  may  exchange  checks,  and 
each  person  deposits  the  check  of  the  other.  Afterward,  they  dravv 
out  money  on  their  own  checks.  Of  coui'se,  if  the  checks  originally 
given  were  paid,  no  loss  would  ensue  to  either  bank,  but  in  case  they 
are  not  paid,  the  banks  lose.  When  a  check  is  thus  deposited,  if  the 
deposit  teller  should  have  any  doubt  concerning  the  payment  of  it,  he 
would  inform  the  paying  teller  of  the  fact,  and  that  eventually  when 
the  depositor  presented  his  checlv  for  payment  he  would  get  no  money. 
Such  a  thing  would  not  happen  with  a  new  depositor,  for  a  bank  would 
not  be  likely  to  pay  out  money  when  it  had  received  none.  But  when 
a  person  has  been  depositing  for  a  considerable  time,  if  he  should  thus 
slip  in  the  check  of  another,  the  payment  of  which  was  doubtful  oi 
impossible,  he  might  be  able  to  check  against  it  and  in  that  way 
defraud  the  bank.  Tliis  process  of  exchanging  checks  and  drawing 
against  them  is  called  "kiting,"  and  the  persons  who  practice  it  are 
regarded  dangerous  bj-  a  bank.    No  one  would  be  likely  to  succeed  a 


THE   ]'AYIN(J   TELLER.  153 

sec'oud'time  with  the  same  institution;  indeed,  when  a  person  is  de 
tected  of  doing  it,  his  aeeonnt  is  closed,  and  the  bank  refuses  to  have 
further  dealings  with  him. 

Merchants  in  distant  cities  usually  malie  tlieir  notes  payable  in  a 
New  York  City  bank  and  remit  the  money  to  pay  them  previous  to 
their  maturing.  These  remittances  contain  a  letter  of  instruction 
which  is  delivered  to  the  paying  teller,  who  pays  the  obligation  when 
it  is  presented.  After  canceling  it,  the  note  is  returned  to  the  person 
who  sent  the  money. 

What  shall  the  paying  teller  do  when  a  checlv  is  presented  for 
payment  and  the  deposit  is  insutlicient  to  pay  it?  Shall  he  paj^  as 
mucli  as  he  can  and  endorse  the  amount  on  the  checli  and  return  it  to 
the  presentorV  This  practice  has  secured  judicial  sanction,  but  it  is 
not  the  general  one.  If  the  presentor  says  to  the  paying  teller,  "give 
me  what  you  have;  I  will  deliver  you  the  check,"  then  he  can  safely 
pay  whatever  balance  he  may  have.  A  more  common  practice  perhaps 
is  for  the  presentor  to  find  out  what  amount  is  lacking  in  the  bank 
to  pay  tlie  check,  to  deposit  that  amount,  and  tlien  present  his  check; 
but  the  result  is  the  same,  taking  the  depositor's  balance  and  surrender- 
ing the  check. 

A  more  difficult  question  arises  when  a  number  of  checks  are 
presented  to  a  bank  througli  the  clearing-bouse.  The  messenger  re- 
turns Avith  the  checks  drawn  on  his  banlc,  and  in  examining  those 
drawn  by  A  it  is  found  that  he  has  overdrawn  his  account.  Suppose 
there  are  six  checks  and  money  enough  in  the  bank  to  pay  two  of 
them  and  a  part  of  another.  Wliat  shall  be  done?  There  are  two  ways 
at  least  of  disposing  of  these  checks.  One  is  to  return  them  to  the  bank 
to  wliicli  tliey  l)elong.  When  this  course  is  taken,  the  bank  receiving 
its  check  first,  if  equidistant  from  the  drawee  bank  to  some  other,  has 
the  best  chance  of  presenting  it  earliest  and  getting  its  money.  If  the 
checks  are  delivered  in  the  order  of  their  arrangement  when  received, 
the  bank  furthest  off  might  be  the  first  to  send  its  check  back  and  make 
a  re-presentation  for  payment.  This  is  a  proper  matter  for  clearing- 
house regulation.  The  rule  has  been  established  by  some  of  them, 
that  when  all  the  checks  of  a  maker  that  are  thus  presented  at  the 
same  time  through  the  clearing-house  which  cannot  be  paid  in  full, 
a  pro  rata  amount  shall  be  paid  on  all.  This  is  a  fair  way  of  treating 
all.  but  what  shall  the  bank  demand  as  security  for  the  money  paid? 
It  needs  some  receipt  or  authority  for  its  payments.  It  can  require 
a  bond  of  indemnity,  the  delivery  of  the  checks,  or  some  kind  of 
security,  to  satisfy  the  depositor,  or,  in  the  event  of  his  failure,  to 
satisfy  his  assignee  or  other  representative.  A  bank's  action  in  such 
cases  might  be  regulated  in  advance  and  stated  in  the  pass  book  given 
to  depositors. 

Tlie  paying  teller  must  l)e  assured  that  tlic  presentor  of  a  check 


154  PRACTICAL  BANKING. 

is  entitled  to  the  money.  To  that  end  the  holder  of  an  endorsed 
check  must  be  identified.  Persons  who  hold  such  checks  when  pre- 
senting them  for  payment  are  often  surprised  to  learn  that  identifica- 
tion is  necessary.  A  check  drawn  "payable  to  boarex'"'  requires  no 
identification,  and  if  a  bank  should  pay  it,  in  no  event  would  it  be  the 
loser;  but  if  it  should  pay  a  check  payable  to  order  to  the  wrong  per- 
son, then  it  would  be  required  to  pay  a  second  time.  It  is  to  guard 
against  payment  to  the  wrong  person  that  checks  are  drawn  payable 
to  order.  It  is  a  form  of  security  which  should  not  be  omitted.  Even 
if  a  check  should  be  lost  or  stolen,  and  the  endorsement  of  the  person 
to  whose  order  it  was  payable  was  forged,  and  payment  was  demanded 
and  made,  the  bank  would  be  required  to  pay  a  second  time  to  the 
rightful  owner  of  the  check.  As  this  is  the  law,  banks  cauuot  exer- 
cise too  much  care  in  paying  checks  to  the  persons  who  are  entitled  to 
the  money,  and  no  one  can  reasonably  complain  if  the  utmost  pre- 
caution is  observed  in  makiug  needful  inquiries  concerning  those  who 
present  checks  for  payment.  Nevertheless,  such  inquiries  are  some- 
times vexatious  and  annoying.  It  is  not  always  easy  to  find  a  person 
who  is  willing  to  go  to  the  bank,  or  who  can,  to  identify  the  check- 
holder.* 

Endorsed  checks  paid  to  the  clearing-house  are  regarded  as  guar- 
anteed by  the  bank  from  which  they  come.  Any  bank  will  guarantee 
the  endorsement  of  a  dealer  who  is  well  known  to  it. 

In  paying  checks  banks  usually  insist  on  the  endorsement  of  the 
presentor,  whether  the  check  is  made  payable  to  order  or  bearer.  The 
question  has  sometimes  been  asked  Avhether.  if  the  presentor  of  a 
check  payable  to  order  declines  to  endorse  it,  the  paying  teller  can 
insist  that  he  must  do  so  before  paying.    Strictly  speaking,  if  the  pre- 


*An  Englishman  from  the  West  Indies  landed  in  New  York  city 
having  no  money  except  a  draft  for  £200  on  a  New  York  bank.  Anxious 
to  get  a  train  for  8t.  I.ouis  the  same  day  he  hurried  to  the  bank  for  bis 
money.    The  teller  refused  to  pay  the  draft  until  he  was  identified. 

And  the  young  man  was  an  absolute  stranger  in  New  York! 

"Your  people  in  the  West  Indies  took  my  good  money  for  that  draft 
and  I  want  it  back  again.  Am  I  to  infer  that  this  is  a  bankrupt  insti- 
tution V" 

He  got  no  satisfaction,  lost  his  train  and  had  to  pawn  his  watch  for 
a  meal  and  a  bed.  A  fellow  passenger  identified  him  the  next  day. 
Nothing  looks  more  ridiculous  to  a  Ijondon  mercantile  man  than  to  see 
a  long  row  of  persons  Avith  books  in  their  hands  waiting  to  make  a 
deposit  through  a  cubby  hole  with  a  solitary  receiving  teller,  or  to 
receive  payment  of  money.  A  bank  with  a  large  business  ought  to  have 
half  a  dozen  receiving  and  as  many  paying  tellers  at  large,  wide,  open 
count(>rs.  "Why  all  these  cages  and  railings  and  bars  and  peeii  holes 
through  which  you  are  occasionally  permitted  to  catch  a  glimpse  of 
the  teller's  nose  who  suddenly  and  unwillingly  hands  you  your  money? 
They  don't  have  these  things  in  England,  and  rol)beries  in  banks  are 
rare.    Here,  despite  all  these  precautions,  they  are  frequent. 


THE  PAYING   TELLER.  155 

soiitor  is  ujuvilllng:  to  comply  with  this  request,  tho  paying  toHcr  must 
houor  the  check,  for  as  it  is  payable  to  a  giveu  person,  or  his  order, 
if  the  person  thus  named  presents  it,  or  some  other  whom  he  has 
designated,  the  bank  must  complj'  with  the  direction.  The  presenter's 
refusal  is  so  I'are  tiiat  perhaps  a  paying  teller  has  some  reason  for 
suspecting  that  there  is  something  wrong  about  the  check  and  if  he 
has,  he  ought  to  exercise  more  caution  before  paying  it.  Having  done 
this  and  tiuding  nothing  wrong,  he  must  comply  with  the  presenter's 
order.  The  endorsement  on  the  check  is  an  excellent  receipt  to  the 
bank  as  well  as  to  the  maker  of  the  payment  of  the  money,  and  for 
that  reason  a  bank  should  always  endeavor  to  secure  the  endorsement 
of  the  preseutor,  and  this  request  is  so  reasonal»le  that  only  on  rare 
occasions  does  anyone  refuse  to  comply.  And  for  the  same  reason 
the  paying  teller  should  insist  on  the  endorsement  of  a  check  payable  to 
bearer.    Its  history  then  becomes  complete. 

Sometimes  a  check  is  presented  imperfectly  endorsed.  Perhaps  an 
endorsement  is  lacking,  or  some  other  defect  in  order  to  make  the 
title  good.  As  the  paying  teller  is  without  proper  authority  to  pay  it. 
What  shall  he  do?  If  he  should  say  to  the  presenter,  "you  must 
return  this  check  and  get  the  proper  endorsement,"  it  may  be  that  the 
presenter  would  run  the  risk  of  not  getting  his  money  at  all,  for 
during  the  interval  of  securing  the  endorsement  the  maker  might  fail. 
The  correct  thing  is  for  the  preseutor  to  ask  the  paying  teller  to  set 
aside  the  amount  specified  until  it  comes  around  again  in  ])roper 
form,  and  he  can  do  this  in  the  regular  way  by  certifying  the  check, 
for  when  a  check  is  certified  the  amount  is  charged  to  the  drawer  and 
the  fund  is  set  aside  to  answer  the  check  whenever  it  shall  be  pre- 
sented for  payment.  The  certification,  however,  should  not  be  drawn 
in  the  usual  manner.  An  adeciuate  form  is:  "(Joed  when  properly 
endorsed,"  Avhich  will  secure  the  presenter  against  loss  in  consequence 
of  the  failure  of  the  maker  while  the  check  is  sent  back  for  the  missing 
link. 

The  death  of  the  drawer  works  the  revocation  of  any  clu'ck  lie  may 
have  made  that  has  not  been  presented.  This  is  the  rule  in  most 
states.  In  Massachusetts,  however,  by  statute  a  bank  has  authority 
to  pay  it.  A  bank  is  always  protected  in  paying  a  clieek  after  the 
drawer's  death  if  ignorant  of  the  event.  When  his  death  is  known, 
it  should  have  the  authority  of  the  executor  or  administrator  to  pay 
as  the  funds  in  the  l)ank  immediately  en  the  death  of  the  draAver  by  law 
pass  to  that  individual.  It  would  be  well  if  a  statute  en  the  subject 
existed  in  every  state;  and  the  matler  is  a  proper  one  for  regulation 
between  banks  and  their  custeiuers. 

In  paying  checks  drawn  by  executors  and  trustees,  i*:  is  usu;illy 
said  that  if  there  be  two  or  more,  eithe"  of  tiiem  can  sign  a  check 
which  the  bank  is  justified  in  paying.    Yet  this  ought  net  to  be.    The 


156  PRACTICAL   BANKING. 

very  object  of  appointing  two  executors  or  two  triu.tees  is  joint  action, 
and  in  the  payment  of  money  especially  banks  ought  not  to  disregard 
this  purpose.  If  they  were  strenuous  in  requiring  both  executors  to 
sign  checks,  the  requirement  would  not  be  unreasonable.  In  some 
cases  courts  have  held  that  both  trustees  of  an  estate  must  sign 
checks,  and  in  our  judgment  the  rule  should  extend  to  executors;  in 
short,  to  all  persons  who  act  in  a  trust  capacity.  We  are  constantly 
learning  of  the  wrongdoings  of  executors,  and  banks  should  do  their 
part  in  exacting  more  of  them.  Every  requirement  tending  to  greater 
strictness  in  the  execution  of  their  trusts  is  for  the  benefit  of  those 
for  whom  they  act. 

Very  often  stale  checks  are  presented  for  payment.  A  person  may 
carry  one  around  in  his  pocketbook  several  days  or  weeks  before 
presentation.  Nevertheless,  it  is  a  valid  obligation  and  must  be  paid. 
Their  holders,  however,  should  remember  that  they  cannot  continue 
the  liability  of  the  drawers  during  the  period  of  delay.  It  is  the  duty 
of  every  holder  of  a  check  living  in  the  town  where  the  drawee  bank 
is  located  to  present  the  same  on  the  day  it  is  received,  or  the  next', 
for  payment,  and  if  he  forgets  to  do  so,  or  it  is  not  convenient  for 
him  to  comply  with  this  well-established  rule,  his  check  is  indeed  valid, 
but  he  cannot  hold  the  drawer  for  the  amount,  but  only  the  drawee 
bank.  And  this  rule  accords  with  good  sense.  The  maker  of  a  check 
gives  the  receiver  an  order  on  a  bank  for  money  due  to  him,  which  he 
accepts.  If  he  declines  to  accept  the  check  he  has  a  right  to  do  this, 
and  demand  the  money  in  payment,  but  if  he  accepts,  then  he  has  a 
clear  duty  to  perform  to  present  the  check  within  two  days  after  re- 
ceiving it.  This  duty  the  law  presumes  or  implies  he  will  perform. 
If  he  does  not,  and  keeps  the  check  longer,  he  does  so  at  his  own  risk, 
and  should  the  bank  fail,  he  has  no  right  in  justice  or  law  to  ask  the 
maker  to  send  another  check  for  the  amount,  or  to  pay  him  the  money. 

There  are  many  nice  questions  concerning  the  duty  of  a  paying 
teller  when  a  check  has  been  kept  for  a  considerable  period.  The 
maker  ought  in  every  case  of  a  check  that  has  not  appeared  within 
a  reasonable  time  to  make  inquiry  concerning  it,  or  perhaps  notify  the 
teller  that  he  has  one  outstanding  given  on  such  a  date  and  specify  the 
amount.  Such  a  notice  would  relieve  him  very  much  when,  after  a 
long  delay,  a  chock  was  presented  answering  to  the  maker's  de- 
scription. 

In  law,  there  is  no  contract  between  a  drawee  bank  and  the 
presentor  of  a  check  whereby  it  can  compel  him  to  demand  payment, 
except  in  Illinois,  Kentucky.  Missouri,  and  South  Carolina,  but  there 
is  a  contract  between  every  bank  and  its  depositor  to  honor  his  checks; 
and  if  this  is  not  fulfilled,  and  any  loss  happens  to  a  depositor  in 
consequence  of  his  liank's  neglect,  it  is  responsible.  Every  now  and 
then  a  l)ank  makes  a  mistake  in  bookkeeping  whereby  the  balance  of  a 


THE  PAYING   TELLER.  l'')^ 

depositor  is  struck  too  low;  and  wlien  a  clieelv  is  presented  for  pay- 
ment the  bank,  not  liavinfi  enougli  money,  returns  it  to  the  holder. 
In  such  a  case  the  depositor  has  a  right  to  proceed  against  the  bank 
to  recover  whatever  injury  his  credit  may  have  sustained  by  its 
action,  though  it  may  have  been  unintentional. 

On  the  other  hand,  a  paying  teller  must  not  pay  any  checks  except 
on  the  order  of  the  maker.  If  he  does  not  follow  this  well-known 
rule,  if  he  pays  one  tliat  has  been  altered  in  the  date,  amount,  or  other- 
wise, whereby  the  maker  sustains  loss,  he  can  look  to  the  bank  for 
indemnity.  When,  therefore,  a  check  is  presented  several  weeks  or 
months  after  it  was  given,  while  it  may  be  genuine  there  is  always  a 
fear  that  it  may  not  be  travelling  in  its  proiier  course,  and  ought  not 
to  be  paid.  No  rule  can  be  prescribed  to  govern  a  paying  teller  in  such 
cases,  and  he  must  exercise  his  own  best  judgment  with  reference  to 
paying  them.  But  a  regulation  might  be  made  and  thus  relieve  the 
paying  teller  from  all  doubt  concerning  his  duty. 

Drawers  sometimes  direct  that  checks  which  they  have  given  be  not 
paid  on  presentation.  As  a  check  on  a  bank  is  an  order  for  the  payment 
of  money  belonging  to  the  drawer,  he  has  the  right  to  revoke  it,  and  it 
such  a  revocation  is  given,  and  the  bank  does  nevertheless  pay,  it  as- 
sumes a  new  risk,  it  is  therefore  very  important  to  keep  a  record  of 
the  checks  whose  payment  has  been  stopped.  Books  are  prepared 
for  this  purpose,  one  for  each  ledger,  and  arranged  alphabetically,  so 
that  the  dealer's  page  may  be  referred  to  as  quickly  as  possible.  The 
direction  to  stop  payment  must  be  in  writing,  and  all  the  particulars 
concerning  the  check  on  which  payment  has  been  stopped  must  be 
carefully  entered  with  full  extracts  from  the  letter  giving  directions 
to  the  bank  concerning  the  matter.  Some  banks  have  a  form  which 
they  send  to  their  dealers  to  be  filled  out  when  they  wish  to  stop 
the  payment  of  a  check. 

As  soon  as  payment  has  been  stopped,  the  notice  is  sent  to  the  pay- 
ing teller.  He  examines  it,  and  puts  his  initial  on  it,  and  turns  it  over 
to  the  bookkeeper,  who  records  the  fact.  He  is  the  person  to  watch  the 
matter,  because  he  has  the  record.  When  exchanges  come  from  the 
clearing-house,  he  compares  them  with  the  stop  list  after  they  have 
bi-en  arranged  alphabi'tically,  and  runs  them  over,  and  can  speedily 
determine  whether  any  check  has  been  stopped.  In  some  banks  as 
soon  as  a  check  of  this  kind  appears,  he  takes  it  immediately  to  the 
cashier.    Nothing  important  is  done  without  his  action. 

In  all  places  where  olearing-houses  exist,  many  checks  are  pre- 
sented and  paid  through  this  agency.  The  payment  of  them  is  also  a 
part  of  the  duty  of  the  paying  teller.  About  half-past  ten  the  ex- 
changes from  the  clearing-house  are  brought  in  by  the  messenger.  If 
the  paying  teller  examined  the  checks  received  lie  would  be  ol>ligtHl 
to  neglect  other  work,  for  they  frequently  amount  to  several  millions. 


158  PRACTICAL   BANKING. 

Three  infeii  are  often  sent  by  a  bank  to  the  clearing-house.  One  man, 
a  messenger,  carries  the  exchanges,  another  guards  him,  and  the  third 
is  the"  settling  cleric.  The  settling  clerk  sits  at  a  desk  assigned  to 
him.  The  messengers  start  one  after  another  in  the  manner  fully  ex- 
plained in  the  latter  part  of  this  work.  The  settling  clerk  receives  the 
envelopes  containing  the  checks  on  his  bank  from  the  messengers  of 
other  banks  as  thej'  are  passed  in  to  him.  lie  keeps  these  in  a  cer- 
tain order,  and  enters  the  amount  from  each  bank  in  the  appropriate 
place  in  a  statement  prepared  for  that  purpose.  As  soon  as  tlie  proof 
is  made  the  balances  are  struck,  and  the  messenger  and  assis;:ant 
return  to  the  bank.  The  settling  clerk  remains  to  make  the  Cnal 
proof,  and  then  he  returns.  The  messengers  bring  with  them  the 
record  of  the  balance,  which  is  generally  correct.  Sometimes,  but  not 
often,  a  small  variation  is  discovered  after  further  examination,  which 
is  always  made. 

When  the  debit  exchange  is  thus  received  it  must  be  carefully  ex- 
amined. From  what  has  been  said  already  the  reader  will  understand 
that  it  consists  of  checks  drawn  on  the  bank  to  which  it  has  b,_»en 
returned.  The  signature,  endorsement,  and  whatever  peculiarity  a 
check  may  possess,  mut  be  examined  before  charging  it  to  the  drawer. 
This  work  is  done  during  the  intervals  of  other  business,  and  not  so 
much  haste  is  required  in  completing  it  as  in  preparing  the  credit  ex- 
change for  the  clearing-house,  because  that  must  be  there  by  ten 
o'clock,  otherwise  a  bank  is  fined  for  tardiness. 

The  assistant  bookkeepers  check  out  the  exchanges,  though  this 
work  is  sometimes  done  by  the  bookkeepers  who  post  them  in  their 
ledgers,  and  bring  the  totals  of  their  postings  to  the  paying  teller,  who 
compares  the  record  with  the  amount  brought  from  the  clearing-house, 
which  miist  be  the  same. 

Having  now  considered  the  duties  of  a  paying  teller  with  respect 
to  preparing  liis  exchanges,  we  proceed  to  consider  another  very  im- 
portant function  performed  by  him,  namely,  the  certifying  of  checks. 

This  consists  in  writing  or  stamping  on  a  check  words  to  the  effect 
that  it  is  "good."  which  signify  that  it  will  be  paid  on  presentation. 

\Mien  a  dt>positor  has  enough  money  in  the  bank  to  pay  th?  ch3ck 
presented  for  cert  iti  cat  ion,  the  duty  of  the  paying  teller  is  a  very  simple 
one;  he  will  not  hesitate  to  certify  such  a  check.  Requests  of  this 
kind  are  often  made  in  order  to  render  a  ch^ck  more  negotiable.  A 
person,  for  example,  may  be  unwilling  to  receive  a  check  if  drawn  in 
the  ordinary  manner;  but  if  certified  by  the  bank  on  which  it  is  drawn, 
no  one  will  hesitate  to  receive  it. 

The  paying  teller  is  often  asked  to  certify  checks  for  a  much  larger 
sum  than  the  drawer  may  have  on  deposit,  and  the  question  then 
arises,  "Shall  I  grant  or  refuse  the  request?"  This  is  often  a  very 
delicate  question  with  him.    When  observing  the  national  banking  law 


THE   PAYING  TELLER.  159 

his  duty  is  verj-  plain,  for  lie  is  not  pt-rniitttMl  to  ccrtiry  Ix-yond  the 
amount  -which  the  depositor  may  iiave  in  tlie  banic.  I'lidcr  tlie  state 
bank  system,  however,  no  siicii  rci^ulaf  ion  i)ri'vails. 

Whenever  tlie  reiiuesi  is  made  the  di'awer  expects  to  make  de- 
ficiency good  within  a  short  time,  jjenerally  l)efore  the  close  of  the  day. 
The  payinj,'  teller  is  given  a  very  wide  latitude  in  granting  or  declining 
these  re(iuests.  Isually  he  acts  on  his  own  authority,  though,  of 
course,  there  is  nothing  to  prevent  him  from  getting  the  opinion  of  the 
cashier  or  president.  In  all  cases  the  question  is  decided  very  quickly. 
If  the  person  asking  for  the  favor  is  an  old  customer,  and  has  always 
been  promi)t  in  fulhlling  his  engagements,  and  whose  account  is  a 
large  and  desirable  one,  tlie  paying  teller  would  not  hesitate  to  certify. 
If  he  were  a  new  dealer,  and  not  well  known  to  the  paying  teller,  he 
would  refuse.  A  good  autliority  says,  "The  discretion  of  the  teller  in 
certifying  checks  is  for  the  most  part  independent  of  his  superior 
officers,  and  they  are  averse  to  interfering  with  it.  In  doubtful  cases 
he  refers  to  them  for  special  instruction.  Dealers  apply  to  them  also 
to  reverse  his  judgment,  l»ut  not  often  with  success.  Either  of  them 
would  be  likely  to  answer,  'The  teller  understands  his  business  better 
than  I  do.'  Such  is  the  influence  acquired  by  a  competent  and  judicious 
clerk  in  this  post  that  he  obtains  a  degree  of  respect  of  the  customers 
of  the  bank  a  little  less  than  is  accorded  the  president  or  cashier." 

In  paying  a  note  or  acceptance  to  a  bank  or  banker,  instead  of 
drawing  bank  notes  for  the  amount,  the  payer  should  request  the 
paying  teller  of  the  bank  in  wliich  his  funds  are  deposited  to  certify 
that  his  check  is  good  for  the  amount,  and  hand  it  to  the  bank  or 
banker  who  holds  the  note  or  acceptance.  The  check  in  all  cases 
should  be  made  payable  to  his  or  their  order  for  the  amount  of  the 
same. 

In  the  absence  of  the  paying  teller  the  receiving  teller  occupies  the 
place,  and  the  same  authority  to  certify. 

Certified  checks  are  generally  returned  in  the  debit  exchange  on  the 
following  day  through  the  clearing-house.  But  very  often  they  are 
remitted  to  other  places  and  do  not  appear  for  redemption  for  a  con- 
siderable time.  They  are  charged,  however,  to  the  drawers  immedi- 
ately, for  certification  is  regarded  equivalent  to  payment. 

The  city  banks  have  a  hook  in  which  these  are  recorded.  The  ag- 
gregate is  posted  to  the  credit  of  an  account  called  "Certified  Checks," 
which  is  balanced  by  tlie  separate  charges  as  the  checks  come  in. 
When  the  checks  are  paid  they  are  entered  on  the  debit  side  of  this 
account;  consequently  it  always  shows  the  l)alance  of  certified  checks 
outstanding.  Formerly  tlic  dealer's  ledger  account  Avas  not  charged 
with  such  checks  until  they  were  received  for  payment.  They  might 
be  out  so  long  as  to  be  forgotten  by  the  teller  and  the  bookkeeper,  and 
It  was  not  difficult  to  practice  a  fraud  on  a  bank  by  checking  out  de- 


160  PRACTICAL   BANKING. 

posits  to  such  an  extent  as  to  leave  an  insiitficient  sum  for  the  re- 
demption of  a  certified  check  when  presented.  The  losses  to  which 
the  old  methods  gave  rise  led  to  the  adoption  of  the  existing  plan  of 
posting  certifications. 

The  effect  of  certifying  has  often  been  declared  by  the  courts. 
Perhaps  the  remarks  of  the  United  States  Supreme  Court  on  this 
subject  are  as  weighty  as  those  of  any  tribunal.  In  an  important 
case  before  the  United  States  Supreme  Court,  Judge  Swayne  re- 
marked that  "the  certificate  of  a  bank  that  a  check  is  'good'  is  equiva- 
lent to  acceptance.  It  implies  that  the  check  is  drawn  upon  sufficient 
funds  in  the  hands  of  the  drawee,  that  they  have  been  set  apart  for 
its  satisfaction,  and  that  they  shall  be  so  applied  whenever  the  check 
is  presented  for  payment.  It  is  an  undertaking  that  the  check  is  good 
and  shall  continue  good,  and  this  agreement  is  as  binding  on  the  bank 
as  its  notes  of  circulation,  a  certilicate  of  deposit  payable  to  the  order 
of  the  depositor,  or  any  other  obligation  it  can  assume.  The  object  of 
certifying  a  check,  as  regards  both  parties,  is  to  enable  the  holder  to 
use  it  as  money.  The  transferee  takes  it  with  the  same  readiness  and 
sense  of  security  that  he  would  take  the  notes  of  the  bank.  It  is  available 
also  to  him  for  all  the  purposes  of  money.  Thus  it  continues  to  perform 
its  important  functions,  until  in  the  course  of  business  it  goes  back  to  the 
bank  for  the  redemption  and  is  extinguished  by  payment."  By  doing 
this  the  maker  is  immediately  relieved  and  the  bank  becomes  the 
primary  debtor  to  the  holder  of  the  check. 

Some  important  questions  have  arisen  concerning  the  effect  of 
subsequent  inquiries  to  the  othcers  of  banks  who  have  given  such 
certifications.  Suppose  the  holder  of  a  certified  check  presents  the  same 
to  a  paying  teller  and  asks,  "Is  it  goodV"  and  he  replies,  "yes,"  what 
is  the  purport  of  the  answer?  The  answer  given  by  the  highest  court 
of  New  Yorlv  is  that  he  guarantees  the  genuineness  of  the  drawer's 
signature,  but  does  not  bind  the  bank  for  the  amount  specified,  or 
that  the  check  has  not  been  raised  or  otherwise  altered.  This  rule, 
settled  after  much  discussion,  we  venture  to  criticise  as  very  loose 
and  contrary  to  the  general  opinion.  When  a  check  is  certified,  the 
amount  is  charged  to  the  depositor  and  a  proper  entry  is  made  of  the 
transaction.  The  paying  teller  should  compare  the  check  with  this 
entry,  and  by  so  doing  he  would  know  whether  it  had  been  raised 
during  the  interval  of  certification  or  not.  To  this  extent  therefore 
a  bank  ought  to  be  held  by  the  inquiry. 

But  it  would  not  be  reasonable  to  hold  a  bank  for  the  amount  cer- 
tified in  the  beginning,  because  it  does  not  know  at  the  tinr.>. 

The  relation  between  the  holder  of  a  check,  unless  this  is  by  the 
maker  and  the  bank  on  wliich  it  is  drawn,  is  very  different  from  the 
relation  between  the  maker  and  the  bank.  As  between  these  two  it 
is  the  duty  of  a  bank  to  guard  against  all  alterations,  and  is  liable  to 


THE   P  -YlXa   TELLER.  161 

him  if  paying  more  than  the  amount  specified  in  his  checlc.  It  is,  how- 
ever, under  no  such  rule  or  liability  to  the  holder.  If  then  he  should 
present  a  raised  check  and  it  should  be  certified  and  afterward  paid, 
the  banlv  could  recover  the  excess  from  him  unless  there  was  some  neg- 
ligence on  its  part  in  certifying,  or  in  paying  the  same.  The  malcer,  it 
will  be  seen,  is  protected  in  any  event  from  loss  by  the  action  of  the 
banli,  but  the  holder  might  be  the  loser  notwithstanding  the  bank's 
certification  of  its  correctness.* 

In  Philadelphia  banks  certify  no  checks,  but  whenever  a  depositor 
wishes  to  give  more  credit  to  his  check  than  can  be  conveyed  by  his 
own  signature,  he  gives  his  check  for  the  amount  desired  and  asks 
the  banlv  for  a  due  bill,  which  is  the  bank's  order  on  itself  for  the 
amount  signed  by  the  paying  teller  and  countersigned  by  the  cashier, 
or  other  otticer,  and  is  paid  the  next  day  through  the  clearing-house. 
The  following  is  the  form  of  the  due  bill: 

No.  Clearing  House  Due  Bill. 

BANK. 

Philadelphia,   i8<) 

^    Due  by     Bank, 

d 

GO    To 

H Thousand 

^    Hufidred  and jij^  Dollars. 

O 

This  Due  Bill  is  valid  only  when  signed  by  one,  and  counter- 
signed by  another  authorized  person,  and  is  payable  only  in  the 
Exchanges  through  the  Clearing  House  the  day  after  issue. 

$  TTfTT  Teller. 

This  obviates  many  of  the  difficulties  surrounding  certified  checks. 
A  little  more  time  is  required  to  make  one  than  in  simply  certifying 
checks  that  are  presented  for  the  purpose,  and  it  may  be  that  a  few 
banks,  which  do  a  very  large  business  in  certifying,  would  find  this 
practice  too  slow  for  them,  but  it  certainly  could  be  used  to  advantage 
by  perhaps  all  the  banks  in  the  country  except  half  a  dozen.  Even 
these  could  employ  additional  help  and  dispense  with  the  present 
method,  which  has  given  rise  to  so  much  dissatisfaction.  The  due  bill 
given  by  the  bank  is  always  a  genuine,  bona  fide  instrument.  If  it 
is  afterwards  raised,  that  is  an  affair  between  the  l)anli  and  the 
holder  with  which  the  maker  has  no  concern.  The  situation  is  much 
simpler  by  giving  a  due  bill,  and  this  practice  ought  to  find  favor  with 


*For  the  origin  of  thn  practice  of  certifying  checks,  see  BoUes'  Finan- 
cial Hist,  of  U.  S.  from  IHtil  to  1885,  note  page  365. 
U 


162  PRACTICAL   BANKING. 

the  banks  everywhere.  For  out-of-towu  ch'culation  a  draft  is  given, 
or  a  certiticate  of  deposit. 

When  the  checks  of  a  depositor  have  been  paid  and  his  pass  book 
has  been  balanced  and  returned  to  him,  he  should  at  the  earliest  mo- 
ment examine  his  checks  for  the  purpose  of  ascertaining  whether  they 
are  correct  in  amounts  and  in  all  other  respects.  The  liability  of  a 
bank  for  mistakes  has  grown  wath  the  increase  in  modern  business, 
as  it  is  often  necessary  for  men,  even  in  matters  which  are  of  the 
most  confidential  nature,  to  intrust  them  to  others,  even  to  the  making 
and  endorsing  of  checks.  Every  now  and  then  a  confidential  clerk 
takes  advantage  of  his  situation  to  abuse  his  trust  and  to  make  and 
endorse  checks  for  his  own  benefit.  Unhappily,  the  banks  in  many 
cases  have  been  held  responsible  for  his  conduct.  Two  different  rules 
prevail  on  the  subject  of  a  bank's  liability,  and  both  ai-e  highly  im- 
portant and  should  be  stated.  One  of  them  is  the  federal  rule,  which 
was  declared  in  the  following  case:  A  man  named  Cooper  had  a 
confidential  clerk,  Berlin,  who  deposited  his  checks,  and  tooli  care 
generally  of  his  money  matters.  After  a  time  Cooper  fovmd  that  his 
bank  account  was  much  smaller  than  he  supposed  it  to  be;  and  on 
examining  liis  checks  he  discovered  that  Berlin  had  been  manipulating 
them  to  his  own  personal  advantage.  Cooper  then  sued  to  recover 
"the  balance  alleged  to  be  due  on  his  deposit  account."  His  book- 
lieeper  had  filled  up  all  the  checks  drawn  thereon  and  entered  them 
in  a  book  kept  for  tliat  purpose.  Some  of  these  were  altered  by 
Berlin  "with  great  care."  in  the  language  of  the  finding  in  the  case, 
and  could  not  be  detected  without  very  careful  scrutiny,  or  a  very  close 
examination.  The  bank  paid  the  "full  raised  amount"  of  the  checks. 
Berlin  paid  Cooper  the  original  amount  and  kept  and  applied  the 
balance  for  gambling.  In  delivering  the  opinion  of  the  court  Judge 
Harlan  said  "there  was  evidence  tending  to  show — we  do  not  say  be- 
yond controversy— that  Cooper  failed  to  exercise  that  degree  of  care 
which,  undi-r  all  the  circumstances,  it  was  his  duty  to  do;  he  knew 
of  the  custom  of  the  defendant  to  balance  the  pass  books  of  its  de- 
positors and  return  their  cliecks  'as  vouchers'  for  payments;  yet  he 
did  not  examine  his  pass  book  and  vouchers  to  see  whether  there  were 
any  errors  in  the  account  to  his  prejudice,  and,  therefore,  he  could  give 
no  notice  of  any.  Of  course,  if  the  defendant's  officers,  before  paying 
the  altered  checks,  could  by  proper  care  and  slcill  have  detected  the 
forgeries,  then  it  cannot  receive  a  credit  for  the  amount  of  those 
checks,  even  if  the  depositor  omitted  all  examination  of  his  account. 
But  if  by  such  care  and  skill  they  could  not  have  discovered  the 
forgeries,  then  the  only  person  unconnected  with  the  forgeries  who 
had  the  means  of  detecting  them  was  Cooper  himself." 

The  New  York  principle  is  very  different,  and  one  of  the  cases  may 
be  described  in  which  it  was  applied.    "Welsh,  a  commission  merchant, 


THE   PAYINQ   TELLER.  163 

had  a  bookkeeper,  wlio  bad  charge  of  his  produce  and  hank  books. 
The  bookkeeper  presented  fictitious  accounts  of  sale  of  the  property  of 
a  customer  to  his  employer,  and  also  checks  for  him  to  sign.  These 
-were  payable  to  the  order  of  the  customer,  and  were  delivered  to  the 
bookkeeper.  He  forged  the  customer's  endorsement  and  put  them  in 
circulation.  They  were  paid  by  the  bank,  charged  in  Welsh's  cash 
book,  and  returned  with  the  other  vouchers  to  the  bookkeeper  balancing 
the  account,  which  was  done  monthly.  Welsh  did  not  discover  the 
fraud  or  the  forgeries  for  several  months,  but  as  soon  as  he  did  the 
bank  was  notitied.  In  an  action  to  recover  the  balance  of  his  deposit 
it  was  held  that  the  deceiving  of  him,  whereby  he  gave  the  checks 
to  his  bookkeeper,  did  not  make  him  responsible  for  the  subsequent 
fraud  on  the  bank,  as  his  act  in  a  legal  sense  did  not  contribute  to  that 
event,  that  he  was  not  precluded  from  disputing  the  right  of  the  bank 
to  charge  the  checks  to  his  account  because  of  the  entry  in  the  pass 
books,  their  return  with  the  vouchers,  and  the  retaining  of  them 
without  objection,  and  that  lie  could  recover." 

This  principle  is  certainly  very  harsh,  and  the  rule  laid  down  by 
the  United  States  Supreme  Court  will  doubtless  And  more  favor 
among  thoughtful  persons.  A  depositor  has  some  duties  to  perform 
in  these  matters  which  he  ought  not  to  be  permitted  to  delegate,  even 
to  a  confidential  clerk;  and  if  they  are  delegated,  he  should  bo  willinj; 
to  accept  the  consequences.  It  is  too  much  to  require  a  bank  to  be 
responsible  for  the  conduct  of  the  confidential  clerk  of  a  depositoi*.  In 
states  where  this  is  the  law,  its  severity  might  be  lessened  by  putting 
a  regulation  in  depositors'  pass  books  requiring  them  to  examine  their 
checks  within  a  fixed  number  of  days  after  their  return  and  to  give 
notice  of  any  mistake  or  alternations,  and  if  not  doing  so,  unless  pre- 
vented by  sickness  or  other  accident,  relieving  the  bank  from  further 
responsibility. 

Some  banks  relieve  themselves  from  this  liability  by  sending  a 
postal  card  to  their  depositors,  or  giving  it  to  them  with  their  book, 
requesting  them  to  make  such  an  examination  and  inform  them  of  the 
result.  The  following  is  the  form  of  card  sent  by  some  banks  to  their 
depositors.  This  is  an  excellent  practice,  and  is  worthy  of  general 
imitation: 

21409 

The  Girard  Life  Insurance,  Annuity  and  Trust  Co., 

OF  PHILADELPHIA. 

Dear  Sirs: 

have   examined bank    book    with    canceled    checks,    settled 

to and  find  the  same  to  be  correct.  Yours  truly, 


IS!)  

riease  Sign  and   Return. 


1G4  PRACTICAL  BANKING. 

It  is  a  general  principle  that  money  paid  by  mistake  can  be  re< 
covered  bacli,  yet  tiie  payment  of  forged  paper  has  long  formed  an 
exception  to  this  rule,  in  other  words,  whenever  payment  is  made  by 
the  drawee  of  a  forged  bill  or  check  to  a  holder  without  his  fault  and 
his  situation  would  be  made  worse  if  compelled  to  refund  the  money, 
it  cannot  be  recovered  from  him.  The  reason  for  this  rule,  says  an 
eminent  jurist,  is  obvious.  The  bank  that  pays  is  supposed  to  be  more 
familiar  with  the  handwriting  of  the  maker  of  the  check  than  the 
holder,  and  the  law  therefore  allows  the  holder  to  cast  on  him  the  en- 
tire responsibility  of  determining  the  genuineness  of  the  instrument, 
and  if  he  fails  to  discover  the  forgery,  imputes  to  him  negligence,  and 
as  between  him  and  the  innocent  holder  compels  him  to  suffer  the  loss. 
But  since  1S4U  in  I'ennsylvania  the  drawee  bank  can  recover  from 
the  holder  of  a  draft  presented  for  payment  money  erroneously  paid. 
The  drawee,  however,  must  not  be  negligent  in  paying  it,  if  he  is  clearly 
guilty  of  negligence  in  any  way,  he  must  suffer  the  loss. 

When  a  person  receives  money  from  a  bank,  he  should  immediately 
count  it.  Many  are  neglectful  of  this  precaution.  If  a  count  is  not 
made  until  some  time  afterward  and  is  found  to  be  short,  troublesome 
questions  arise  between  the  receiver  and  the  bank.  It  may  be  that 
the  receiver  has  lost  some  of  the  money,  and  for  that  reason  a  count 
should  be  made  and.  if  possible,  in  the  presence  of  the  teller.  On 
the  other  hand,  if  his  cash  should  prove  up  too  much  at  the  end  of  the 
day  to  the  amount  of  the  shortage  claimed  by  the  receiver,  then  it 
would  be  strong  proof  that  the  teller  had  made  a  mistake.  If  the 
mistake  can  be  established,  the  bank  can  be  held  liable,  otherwise  not. 
Our  readers  can  readily  understand  the  ditHculties  in  establishing  such 
a  fact  in  most  cases. 

There  are  other  ways  by  which  the  bank  may  pay  and  receive 
checks  than  by  the  lirst  teller.  First,  the  note  teller  may  receive  them 
in  payment  of  a  note.  Secondly,  the  receiving  teller  may  take  them 
on  credit;  and,  thirdly,  the  runner  in  payment  of  a  draft.  For  ex- 
ample, if  Smith  has  a  balance  of  .'j;5,()U()  in  a  bank  he  may  draw  that 
sum  from  the  paying  teller,  or  he  may  give  his  check  for  it  to  another 
person  for  deposit  in  the  same  bank,  or  he  may  take  up  a  note  with 
it  at  the  note  teller's  desk,  or  he  may  pay  a  draft  to  the  runner  with 
it.  Hence  he  may  draw  out  ijilS.OOO  thougli  having  but  one-third  of 
this  sum  on  deposit.  Of  cotu'se  such  a  transaction  is  fraudulent  and 
rarely  happens.    But  it  is  possible. 

If  checks  are  not  paid  when  sent  through  the  clearing-house  they 
are  chargeable  to  the  depositor's  account.  But  if  a  check  is  deposited 
in  the  same  bank  as  that  on  which  it  is  drawn  it  is  paid  when  taken 
by  the  receiving  teller,  as  truly  as  if  the  first  teller  paid  money  in 
discharge  of  it.  In  such  a  case  if  the  check  should  not  be  good,  the 
bank  might  be  obliged  to  look  to  the  drawer  of  it  and  not  to  the  de- 


THE   PAYING   TELLER.  165 

positor.  So.  if  a  dealer  A  took  up  his  uote  with  the  check  of  another 
dealer  B  on  the  same  bauk,  the  liank  would  look  to  the  drawer  of  the 
check  and  not  to  the  dealer  for  the  money. 

Another  dutj'  of  the  paying  teller  relates  to  the  payment  of  notes  of 
depositors.  Those  discounted  by  the  bank  must  be  charged  against 
his  account,  and  if  this  is  not  done  the  endorsers  thereon,  if  there  be 
any.  are  discharged.  This  duty  however  concerning  notes  not  thus 
discounted,  but  which  are  made  payable  there,  has  often  been  ques- 
tioned, and  the  courts  seem  to  be  hopelessly  divided.  In  New  York 
the  highest  court  has  remarked  that  "a  uote  payable  at  a  bank  where 
the  maker  keeps  his  account  is  equivalent  to  a  check  drawn  by  him 
upon  that  bank,  except  that  in  the  case  of  a  note  the  failure  to  pr..>SGnt 
for  payment  does  not  discharge  the  maker."  This  is  in  harmony  with 
the  rule  that  has  long  prevailed  in  England.  The  Supreme  Court  of 
Pennsjlvania  has  declared  that  a  uote  which  is  payable  at  a  bank 
where  the  maker  keeps  his  deposit  is  in  effect  a  draft  on  the  institu- 
tion in  favor  of  the  holder  and  in  discharge  of  the  endorser  if  there 
be  one.  And  Chief  Justice  Marshall  once  remarked  that  "by  making 
a  note  negotiable  in  bank,  the  maker  authorizes  the  bank  to  advance 
on  his  credit  to  the  owner  of  the  uote  the  sum  expressed  on  its  face." 
This  rule  prevails  among  the  banks  in  the  majority  of  states. 

But  the  rule  does  not  prevail  everywhere.  Many  banks  still  adhere 
to  the  practice  of  not  paying  such  notes  unless  they  have  received 
explicit  directions  to  pay  them,  and  this  view  of  their  duty  is  sus- 
tained by  the  courts  of  their  respective  states.  But  every  now  and 
then  a  bank  has  paid  supposing  that  it  ought  to  do  so,  and  the  courts 
have  afterwards  declared  that  it  was  mistaken  in  its  conception  of  its 
duty. 

In  perhaps  more  than  half  the  states  the  courts  have  not  decided 
whether  it  is  the  duty  of  banks  to  pay  such  notes  or  not,  and  in  view 
of  their  uncertain  answer,  everj-  l)ank  ought  to  adopt  a  by-law  clearly 
defining  its  action.  By  this  easy  method  all  doubt  would  be  removed. 
When  the  time  for  serving  dealers  has  expired,  the  paying  teller  makes 
up  a  statement  of  the  day's  business.  This  is  called  a  Proof.  This 
proof  is  a  test  of  the  accuracy  of  the  day's  transactions.  The  footings 
of  cash  on  hand  must  agree  with  the  "balance  of  cash."  If  there  is 
any  discrepancy  it  must  be  hunted  for  until  found,  and  the  necessity 
of  going  over  figures  and  recounting  cash,  after  the  close  of  a  hard 
day's  work,  is  often  an  exasperating  trial  of  the  teller's  patience. 

On  the  next  page  is  the  paying  teller's  Proof  of  the  Arctic  National 
Bank.  Some  tellers  have  a  simple  form,  like  that  given  here,  others 
have  a  much  more  elaborate  form: 


166 


PRACTICAL  BANKING. 


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THE   PAYING   TELLER.  167 

These  suggestions,  put  in  tlio  form  of  I)y-la\vs.  uiaj-  be  rendered 
in  ihe  following  manner: 

By-laws  regulating  the  payment  of  deposits  and  making  collections. 

1.  The  checks  of  depositors  drawn  on  sutticient  funds  will  be  paid, 
notwithstanding  the  death  of  the  depositor,  at  any  time  within  ten 
days  after  knowledge  of  the  event  has  come  to  the  bank  unless  other- 
wise directed  by  the  executor  or  atlmiuistrator  of  the  estate  of  the 
deceased. 

L'.  Checks  will  not  be  paid  beyond  thirty  days  after  their  date 
unless  satisfactory  reasons  are  given  for  the  delay  in  presenting  them, 
or  authority  has  been  directly  given  to  the  bank  by  the  maker  after 
making  them  to  pay  the  same. 

'6.  Deposits  made  by  two  or  more  trustees,  executors,  adminis- 
trators, or  other  persons  acting  in  a  joint  capacity,  not  including 
partnerships,  can  be  withdrawn  only  on  the  signed  order  of  all  of  them, 
unless  a  satisfactory  reason  is  given  to  the  bank  for  paying  on  the 
order  of  one,  or  a  less  number  than  all. 

4.  Depositors  should  examine  their  pass  books,  checks  and  other 
vouchers  within  ten  days  after  their  pass  books  have  been  written 
up  and  returned  with  accompanying  vouchers  to  them,  and  this  bank 
will  not  hold  itself  responsible  for  any  mistake  made  in  paying  on  a 
wrongful  signature  if  such  examination  is  not  made  within  the  time' 
mentioned,  unless  the  depositor  was  sick,  absent,  or  otherwise  unable 
to  perform  his  duty,  or  unless  the  bank  was  wilfully  negligent  or 
wrong  in  paying  without  adequate  authority. 

5.  When  a  check  is  presented  and  the  funds  of  the  maker  are  not 
sutlicient  to  pay  it,  the  bank  may  pay  whatever  amount  it  may  have 
belonging  to  him,  either  taking  the  check  and  endorsing  the  amount 
thus  paid  on  the  back,  or  taking  a  receipt  therefor  describing  fully  the 
check  on  the  authority  of  which  the  amount  is  paid. 

tj.  If  two  or  more  checks  are  presented  either  directly  over  the  coun- 
ter or  through  the  clearing-house  at  the  same  time  for  payment,  and 
the  maker's  deposit  is  insutlicient  to  pay  the  full  amount  of  all,  his 
deposit  may  be  applied  pro  rata  on  each  and  endorsed  or  receipted  for 
as  described  in  the  foregoing  by-law. 

7.  All  checks,  notes,  or  other  deposits  credited  as  cash,  in  what- 
ever manner  they  maj'  be  endorsed,  may  be  cliarged  back  in  the  event 
of  their  noncoUection. 

8.  Checks  and  other  instruments  deposited  for  collection  may  be 
sent  to  the  drawee  bank  to  be  collected,  if  this  bank  shall  so  determine. 
Checks  and  other  instruments  deposited  for  collection  may  be  sent 
to  the  drawee  bank  to  be  collected  when  there  is  no  other  reputable 
l)ank  or  banker  in  the  same  place. 

*J.  In  making  collections,  this  bank  considers  itself  fully  authorized 


168  ■  PRACTICAL  BANKING. 

in   taking  other   ctieclvs   in   payment   drawn   on   a   reputable  bank   in 
another  city  than  the  drawee  banli. 

10.  In  collecting  time  drafts  secured  by  merchandise  to  which  the 
bill  of  lading  or  other  title  thereto  is  attached,  the  bank  may  sur- 
render the  same  on  the  presentation  and  acceptance  of  the  draft, 
unless  it  clearly  and  unequivocally  states  that  this  shall  not  be  done, 
or  instructions  to  that  effect  have  been  received  from  the  owner. 

11.  Notes  and  other  obligations  made  payable  here  will  be  re- 
garded as  a  direction  to  pay  the  same,  which  will  be  done  whenever 
the  maker's  deposit  is  sufficient  for  that  purpose. 

After  paying  checks,  their  preserA-atiou  until  their  return  to  their 
makers  is  a  matter  worthy  of  mention.  A  cabinet  check  tile  is  now  in 
use  in  many  banks,  which  has  proved  very  useful.  Each  file  is  provided 
with  stiff  index  partitions,  which  are  movable  and  interchangeable; 
and  new  portions  can  be  easily  added,  or  old  ones  removed.  The  index 
partitions  fit  into  a  longitudinal  groove  in  the  bottom  of  the  file,  so 
that  checks  cannot  possibly  get  uuder  them.  The  follower  is  made 
of  wood,  and  moves  on  a  brass  rod  in  the  bottom  of  the  file,  and  is 
provided  with  an  automatic  clutch,  which  locks  it  in  position.  The 
use  of  the  follower  is  to  keep  the  checks  and  partitions  closely  together, 
thus  preventing  the  checks  from  becoming  soiled  and  keeping  them 
smooth. 

The  index  partitions  of  the  file  are  provided  with  a  subdivided 
alphabet  running  through  the  cabinet,  tlie  checks  are  filed  between  the 
partitions  according  to  the  letter  of  the  alphabet  with  which  a  name  be- 
gins, those  depositors  drawing  a  large  number  of  checks  being  provided 
with  special  compartments  with  the  names  printed  thereon. 


THE  RECEIVIXO  TELLEE  169 


CHAPTER  XII. 

THE  RECEIVING  TELLER. 

This  official  ranlis  next  to  the  paying  teller,  and  usually  succeeds 
him  when  he  is  promoted. 

The  accounts  of  a  bank  may  be  divided  into  the  following  classes: 
General  accounts,  individual  accounts,  banks  and  bankers'  accounts, 
city  dealers'  accounts,  and  collection  accounts.  The  general  accounts 
are  such  as  stock,  expense,  bills  discounted,  profit  and  loss,  cash, 
interest,  exchange  and  some  others. 

The  receiving  teller  receives  all  kinds  of  money  and  checks  from 
the  depositors.  The  book  in  which  these  deposits  are  entered  is  called 
the  receiving  teller's  cash  book.  He  has  two  books  of  the  same  kind 
for  alternate  use  by  the  teller  and  the  bookkeeper. 

The  original  entries  of  individual  deposits  are  made  by  the  re- 
ceiving teller,  and  the  other  entries  are  made  by  the  note  teller.  The 
latter  also  receives  the  money  paid  for  notes  lodged  for  collection. 
Both  clerks  are  receiving  tellers,  the  receiving  teller  is  called  the  second 
teller,  and  the  note  teller  the  third.  This  rank  they  hold  in  the  order 
of  promotion. 

The  deposits  of  merchants  consist  of  the  various  kinds  of  money 
and  checks  already  described,  and  other  documents  representing 
money.*  The  depositor  is  required  to  state  the  details  of  his  deposit, 
and  a  form  is  given  him  to  fill  up.  which  saves  labor  in  making  the 
necessary  statement.  This  blanlc  is  called  a  deposit  ticket.  A  teller 
will  not  receive  money  without  it.  The  practice  is  different  in  country 
banks,  as  will  be  hereafter  shown.  If  his  cash  does  not  prove  at  the 
end  of  the  day,  he  re-examines  these  tickets  and  generally  can  find  out 
where  the  error  is.  After  proving  his  cash,  the  tickets  go  to  the  book- 
keeper to  be  used  in  posting  the  credits  of  the  ledger. 

A  bank  located  in  a  large  city  has  an  exchange  drawer  or  rack 
which  is  divided  into  numerous  boxes.  The  checks  of  neighboring 
banks  i-eceived  for  deposit  are  assorted,  and  those  on  each  bank  are 
put  into  their  own  box. 

The  footings  of  the  checks  thus  received  are  copied  on  the  general 


*For  description  of  the  record  or  slip  made  by  a  depositor,  see  p.  211. 


170  PRACTICAL  BANKING. 

list,  and  added  together  constitute  the  deposit  teller's  portion  of  the 
exchange  which  goes  to  the  clearing-house. 

There  are  no  complex  calculations  in  the  accounts  of  the  receiving 
teller.  His  duties  are  simple,  and  a  high  order  of  intelligence  is  not 
required  to  fulfill  the  duties  of  the  place.  Most  of  the  deposits, 
especially  in  the  banks  in  the  large  cities,  consist  of  merchants'  checks, 
which  are  given  in  discharge  of  obligations  or  purchases.  Some  of 
these  are  certified  before  deposit  and  some  are  not.  Whenever  the  de- 
positor is  well  known,  his  checks  are  received  without  previous  cer- 
tification.   But  in  other  cases  a  certification  is  required. 

The  reader  should  not  confound  the  business  of  certifying  with 
that  of  over-certifying.  There  is  no  legal  objection  to  certifying  a 
check  to  the  amount  of  the  depositor's  balance.  The  national  banking 
law  prohibits  the  certifying  of  checks  only  in  excess  of  the  depositor's 
balance.  The  former  kind  of  certification  is  very  necessary.  Many 
persons  whose  financial  standing  is  not  known  give  checks  outside  the 
banks  on  which  the  checks  are  drawn.  When,  therefore,  the  check 
of  an  individual  bears  the  certification  of  the  bank  on  which  it  is 
drawn,  it  will  readily  pass  in  making  payments,  or  be  taken  on  deposit 
in  any  bank.  But  the  check  of  an  unknown  person  would  be  received 
with  hesitation.  It  might  be  good,  and  it  might  not  be.  The  certifica- 
tion of  a  check  by  the  banli  on  which  it  is  drawn  adds  much  to  its 
negotiability. 

The  receiving  teller  of  a  bank  may  have  reasons  for  requiring 
checks  to  be  certified  of  which  the  dealer  may  be  ignorant  and  perhaps 
cannot  be  informed.  Sometimes  a  very  considerable  degree  of  tact  and 
caution  are  necessary  in  determining  when  certifications  should  be  re- 
quired. Dealers  should  not  be  offended  unnecessarily,  yet  the  safety 
of  the  bank  must  be  regarded  at  all  times.  To  protect  it,  and  to  retain 
the  friendship  and  good  will  of  dealerrj,  is  sometimes  a  difiicult  thing 
to  do.  Some  persons  are  richly  endowed  with  tact  and  power  of  dis- 
cernment; they  always  know  what  to  say.  and  how  to  say  it,  when  to 
be  silent  and  not  excite  distrust  or  arouse  the  ill-feeling  of  dealers.  By 
other  persons  such  a  knowledge  of  men  and  tilings  is  never  acquired, 
though  their  knowledge  in  many  ways  may  be  great  and  useful. 

The  receiving  teller  should  know  the  condition  of  all  accounts.  To 
do  this  he  must  ask  the  bookkeepers  what  is  their  average  run;  ho 
should  personally  examine  the  ledgers,  and  also  the  deposits  and 
checks,  and  make  all  other  inquiries  of  persons  in  the  bank  or  else- 
where who  are  likely  to  throw  any  knowledge  useful  in  his  department 
of  the  business. 

The  receiving  teller  should  examine  the  signatures,  endorsements, 
dates,  and  other  features  of  checks,  the  same  as  the  paying  teller. 
Dealers  who  are  perfectly  honest  may  be  cheated  by  others,  and  de- 
posit fraudulent  or  "kiting"  checks.    The  depositor  should  endorse  his 


THE  RECEIVING   TELLER.  171 

name  below  all  others  on  the  back  of  each  check.  The  receiving  teller 
should  notice  especially  this  last  enclorsemeut,  for  it  is  the  key  to  dis- 
covery if  anything  wrong  should  appear  in  the  future  history  of  the 
check.  At  times,  when  checks  are  rapidly  received  for  deposit,  it  is 
impossible  to  examine  them  carefully,  and  hence  the  greater  need  of 
looking  at  the  endorsement  of  a  depositor.  When  checks  are  finally 
paid  where  they  are  made  payable,  errors  are  sure  to  be  detected, 
and  of  course  the  bank  receiving  them  ought  always  to  know  from 
what  source  they  come,  in  order  to  know  what  to  do  with  them  should 
any  imperfection  be  discovered. 

Reclamations  between  banks  occur  daily.  Checks  are  dated  ahead, 
or  the  dates  are  obscure  or  omitted.  They  lack  intermediate  endorse- 
ment, or  they  are  endorsed  by  attornej'  without  adequate  proof  of  his 
authority.  The  sum  in  the  body  of  the  check  may  not  correspond  with 
the  figures  below,  or  may  be  entirely  wanting.  Checks  sometimes  are 
paid  without  signature.  The  paying  teller  recognizes  a  familiar  style 
of  writing  and  the  omission  of  the  name  may  not  be  detected.  Some- 
times they  are  thrown  into  the  wrong  box,  and  are  taken  to  the  wrong 
bank.  These  and  many  other  errors  happen.  As  soon  as  discovered 
the  checks  are  sent  back  to  their  proper  places  for  correction. 

Merchants  sometimes  keep  accounts  with  more  than  one  bank. 
This  is  done  for  several  reasons.  One  reason  is  to  obtain  larger  dis- 
counts. Some  persons  think  that  greater  secrecy  can  be  maintained 
than  by  doing  all  their  business  with  one  bank. 

There  is  a  protective  feature  in  many  accounts  Avhich  prevent  banks 
from  losing  by  overdraft;  we  mean  when  dealers  have  notes  deposited 
for  collection.  For,  when  paid,  they  are  posted  to  the  credit  of  their 
owner,  and  may  make  up  a  deficit  in  his  account.  Bank  officers  will 
sometimes  admtt  temporary  overdrafts  in  anticipation  of  the  maturity 
of  collection  notes;  or.  wliat  is  better,  make  transient  loans,  holding 
them  as  collateral,  by  which  the  irregularity  of  ovei-draft  is  avoided. 
The  receiving  teller  takes  no  cognizance  of  this  source  of  recupei'ation 
unless  he  finds  a  necessity  to  resort  to  it. 

The  word  "foreign"  is  applied  by  banks  in  New  York  City  to  all 
others.  Most  of  the  banks  located  thei-e  receive,  on  deposit,  indi- 
vidual checks  on  banks  at  a  distance.  Merchants  in  Buffalo,  for  ex- 
ample, remit  their  checks  on  banks  in  that  city  to  their  creditors  in 
New  York,  and  there  they  are  received  as  cash,  perhaps,  deducting 
enough  to  cover  the  exchange  and  the  expense  of  collecting.  They 
may  be  returned  not  good  after  several  days,  and,  in  such  a  case,  the 
depositor  must  promptly  redeem  them.  The  interval  between  their 
deposit  and  their  return  is  long  enough  to  permit  the  dealer  to  close 
his  account  and  leave  the  bank  in  the  lurch.  It  follows  that  the  re 
ceiving  teller  is  practically  discounting  paper  all  the  time. 

The  deposits  received  by  the  receiving  teller  consist  principally  of 


173  PRACTICAL  BANKING. 

checks.    When   making  up   his  list   for  deposit,   the  depositor   should 
endorse  them  all,  whether  payable  to  bearer  or  order,  with  this  phrase: 

Pay  to  the  Order  of 
The  ARCTIC  NATIONAL  BANK. 


J^merican  Cotton  Co. 

In  England,  the  custom  prevails  of  crossing  checks  payable  to 
bearer.  This  crossing  consists  simply  of  drawing  across  the  face  of 
the  check  two  parallel  lines,  between  which  are  written  the  words,  "& 
Co.,"  after  a  blank  space.  The  check  can  then  be  collected  only 
through  a  bank  or  banker. 

To  obviate  the  trouble  of  writing  in  full  the  words,  "Pay  to  the 
order  of  the  Arctic  Bank,"  a  stamp  may  be  used,'  leaving  only  the 
signature  of  the  party  to  be  written  underneath  by  himself.  In  some 
places,  it  is  the  custom  of  a  bank  to  give  a  depositor,  when  opening 
his  account  with  it,  a  rubber  stamp  containing  the  above  form  and 
his  name. 

The  receiving  teller  rarely  receives  forged  checks,  as  he  transacts 
business  only  with  the  regular  dealers.  Of  course  a  dealer  may  de 
termine  to  be  a  knave,  and  to  practice  a  fraud  on  a  receiving  teller, 
but  happily  such  cases  are  very  infrequent. 

One  of  the  most  difficult  duties  of  a  receiving  teller  is  to  determine 
whether  all  the  money  presented  is  good  or  not.  Some  tellers  have 
a  real  knack  for  detecting  counterfeit  money,  while  others  have  but 
very  little.  Much  can  be  learned  from  the  study  of  the  bills;  on  the 
other  hand,  the  peculiar  aptitude  of  some  tellers  is  a  kind  of  innate 
faculty,  quickened,  it  may  be,  by  a  comparison  of  money.  The  banks 
in  the  larger  cities  are  the  chief  victims  of  the  counterfeiter.  "When 
business  is  done  very  quickly  there  is  less  time  for  examination.  Go 
into  one  of  our  large  banks  in  the  afternoon  a  short  time  before  closing 
and  see  the  long  line  of  depositors,  each  of  whom  is  eager  to  get  away 
at  the  earliest  possible  moment.  The  receivers  well  know  the  restless 
uess  of  that  long  row  slowly  moving  on  the  other  side  of  the  grating. 
Consequently  they  work  with  great  rapidity,  and  have  no  time  to 
scrutinize  the  money  received.  Our  larger  banks  should  have  more 
receiving  tellers  in  order  to  take  care  of  depositors  promptly  and  in^ 
sure  themselves  more  perfectly  against  the  wiles  of  the  counterfeiter. 

No  bank  should  be  without  a  standard  publication  on  counter" 
feits.  There  are  several  that  are  fully  alive  to  the  importance  of  tbpir 
work.    But  these  publications  should  not  be  put  away  on  a  sholf  ns 


THE   RECEIVINO   TELLER.  173 

soon  as  they  are  received.  Unless  they  are  constantly  studied,  says  a 
cashier  whose  suggestions  are  worth  heeding,  they  will  furnish  no 
assistance  in  lieeping  counterfeits  out  of  the  drawer,  though  they  will 
teach  you  the  truth,  after  they  are  thrown  back  on  you.  Most  tellers 
have  an  idea  that  they  "know  all  about  it;"  and  can  tell  a  bad  bill 
twenty  feet  off.  if  you  desire  to  become  a  first-rate  teller,  take  your 
counterfeit  detector  and  study  page  by  page,  by  comparison  with 
genuine  notes.  Take  a  strong  magnifying  glass,  examine  the  good  bills, 
and  locate  the  defects  on  the  counterfeits.  Go  from  one  denomination 
to  another,  until  the  looks  of  the  genuine  bills  and  the  weak  spots  in 
the  counterfeits  are  engraved  on  your  memory.  Then  you  know  where 
to  look  for  the  vulnerable  spots,  whenever  you  handle  money,  and  will 
have  no  need  to  scrutinize  the  bills  as  a  whole. 

Besides,  such  investigations  will  teach  you»  the  currency  and  coin 
of  your  country.  "Ah!"  you  will  say,  "what  an  idea!  Have  handled  it 
for  years  and  years;  know  it  like  a  book!"  This  is  mere  vanity!  Try 
it  once!  There  are  but  very  few  tellers  who  can  correctly  describe  even 
those  denominations  most  in  circulation.  Ask  them  for  a  superficial 
description  only,  and  portraits,  vignettes,  etc.,  are  strangely  mixed. 
One  whose  business  is  to  handle  money  from  year  to  year,  should 
endeavor  to  inform  himself  not  only  concerning  fraudulent  issues,  but 
also  on  all  the  facts  relating  to  American  money;  how  it  looks;  how  it 
is  coined  and  manufactured. 

Another  good  practice  is  to  cut  out  all  newspaper  items  or  telegrams 
relating  to  spurious  money  and  how  banks  are  duped.  Paste  these 
in  a  convenient  place  and  read  them  over  occasionally  in  order  to  keep 
alert  and  escape  the  arts  of  the  "shovers  of  the  queer." 

The  observations  of  an  excellent  authority  on  the  methods  of 
detecting  counterfeits  are  well  worth  adding.  Experts  do  not  judge 
so  much  by  the  appearance  of  a  note  as  they  do  by  its  "feel;"  that  is, 
by  the  way  it  slips  through  the  fingers,  but  it  takes  years  of  experience 
to  acquire  the  necessary  fine  touch,  and  even  then  it  is  not  always 
reliable.  Every  bill  is  lettered  and  numbered  and  there  is  a  connec- 
tion between  the  numbers  and  the  letters  which  is  made  in  such  a 
way  that  when  you  know  about  it  you  can  tell  a  genuine  bill  almost 
at  a  glance.  What  are  known  as  the  character  letters  of  a  bill  are 
placed  on  either  side  of  the  central  figure  or  vignette  and  are  A,  B.  C 
and  D  only.  The  letters  stamped  in  colors  before  and  after  the 
numbers  have  nothing  to  do  with  the  case  so  far  as  detecting  a 
counterfeit  goes,  but  those  engraved  on  the  bill  in  the  places  mentioned 
are  rightly  named  character  letters,  since  they  serve,  in  connection 
with  the  numbers,  to  show  if  the  bill  is  genuine.  Now  suppose  you 
have  a  bill  numbered  1292282G.  The  character  letter  on  such  a  bill 
should  be  B.  "Why?  If  you  take  the  last  two  figures,  which  are  26, 
and  divide  them  by  4,  you  will  have  a  remainder  of  2.    Now  B  is  the 


174  PRACTICAL   BANKING. 

second  letter  of  the  alphabet,  and  the  remainder  after  dividing  the 
last  two  figures  by  4  must  in  every  ease  be  that  represented  by  the 
numerical  position  of  the  first  four  letters  of  the  alphabet.  That  is, 
when  one  is  left  over  the  character  letter  should  be  A;  2  over  should 
be  B;  3  over  should  be  C,  and  when  there  is  no  remainder  the  letter 
should  be  D.  When  this  rule  fails  to  work  on  any  bill  you  come  across 
you  can  bet  as  many  more  as  you  can  raise  that  the  bill  is  a  counter- 
feit. It  is  rather  strange,  but  it  is  still  another  fact  that  the  counter- 
feiters have  not  caught  on  to  this  little  scheme  of  Uncle  Sam's  currencjf 
sharps  and  that  they  slap  in  their  letters  and  numbers  without  any 
regard  to  the  relation  that  ought  to  be  between  them. 

When  notes  are  received  that  are  counterfeit  it  is  the  duty  of  the 
receiving  teller  to  mark  their  character.  The  national  bank  act  re- 
quires national  banks  to  stamp  or  write  in  plain  letters  the  words 
"counterfeit,"  "altered"  or  "worthless"  on  all  fraudulent  circulation 
notes  that  come  into  their  possession.  If,  however,  they  wrongfully 
mutilate  national  bank  notes  or  greenbacks  they  must  pay  all  damages. 
This  is  sometimes  a  delicate  duty  to  perform.  A  receiving  teller 
says  to  a  depositor  who  has  presented  a  note  that  is  fraudulent,  and  that 
he  must  stamp  and  return  it  to  him.  Of  course,  the  effect  of  doing 
this  is  to  stop  its  currency,  indeed,  this  is  the  obiect  of  stamping  It, 
The  receiving  teller  may  know  his  customer,  and  that  to  him  such 
intelligence  will  be  very  unwelcome;  yet  there  is  the  plain  law  before 
him.  In  many  cases  the  receiving  teller  is  not  so  sure  that  the  note 
is  counterfeit;  and  should  he  make  a  mistake,  his  bank  would  be 
liable  for  the  amount.  The  error,  however,  can  be  easily  enough 
corrected  by  simply  sending  the  note  for  redemption,  setting  forth  the 
fact  and  getting  a  new  one  from  the  government,  so  that  the  danger  of 
loss  to  a  bank  ought  not  to  deter  a  teller  from  performing  this  clearly 
defined  duty. 

The  attitude  of  the  customer,  however,  may  be  worthy  of  thought; 
and  if  the  teller  has  any  doubt  concerning  its  true  character,  we 
suppose  the  more  common  practice  is  to  return  the  note  and  let  the 
owner  find  out  in  other  ways  whether  it  is  counterfeit  or  not.  In 
Great  Britain  the  general  practice,  in  taking  the  Bank  of  England 
notes,  is  to  put  on  them  the  initials  of  the  person  from  whom  they 
were  received  so  that,  in  the  event  of  any  difficulty,  they  can  be 
traced.  It  would  hardly  be  practicable  for  us  to  introduce  such  a 
system  in  circulating  the  smaller  notes,  but  it  might  be  applied  to 
some  extent  in  circulating  the  larger  ones.  Were  more  care  observed 
in  talving  paper,  in  keeping  records  of  transfer,  etc.,  its  history  could 
be  more  easily  traced,  and  the  counterfeiter's  ways  would  be  harder. 
He  flourishes  because  those  Avho  take  paper  money  are  so  careless  or 
ignorant  in  receiving  it.  Were  they  more  watchful  he  would  be  less 
inclined  to  pursue  this  miserable  business. 


THK  RECEIVIXG  TELLER.  175 

In  receiviug  coin,  and  I'spt'fially  ixold  coin,  tollers  are  sometimes 
neglectful  concerning  its  woiglit.  On  the  Pacific  coast,  where  it  is  in 
more  general  use  than  in  the  East,  as  the  loss  from  abrasion  is 
inevitable,  the  law  would  be  unjust  if  every  coin  falling  below  the 
standard  weight  was  declared  to  be  uncurrent.  On  the  contrary,  it 
expressly  provides  for  the  redemption  of  coins  in  weight  within  certain 
limits.  "Any  gold  coins  of  the  United  States,  if  reduced  in  weight  by 
natural  abrasion  not  more  than  one-half  of  one  per  centum  below  the 
standard  weight  prescribed  by  law,  after  a  circulation  of  twenty 
years,  as  shown  by  the  date  of  coinage,  and  at  a  ratable  proportion 
for  any  period  less  than  twenty  years,  shall  be  received  at  their  nominal 
value  by  the  United  States  Treasury  and  its  offices,  under  such  regula- 
tions as  the  Secretary  of  the  Treasury  may  prescribe  for  the  protection 
of  the  go'-ernment  against  fraudulent  abrasion  or  other  practices. 

'■Any  gold  coins  in  tha  Treasury  of  tlie  United  States  when  reduced 
in  Aveight  by  natural  abrasion  more  than  one-half  of  one  per  centum 
below  the  standard  weight  prescribed  by  law,  shall  be  recoined." 

Coins  twenty  years  of  age  may,  therefore,  be  one-half  per  cent, 
below  standard  weight  and  still  be  current.  The  loss  from  abrasion 
en  $5,000.00  of  such  coins  might  be  !f2.j.00  instead  of  $11.00,  and  on 
$1,000,000  be  $r>.000  instead  of  $2,200,  and  still  the  government 
might  receive  them  at  their  face  value.  Many  of  the  coins  in  use  on 
the  Pacific  coast  are  below  the  limit  of  tolerance,  and  they  have  become 
so  by  reason  of  honest  use  and  not  necessarily  by  any  fraudulent  act. 

A  coin  of  light  weight,  unlike  a  counterfeit  note,  cannot  be  stamped 
"light  weight"  or  any  words  to  indicate  its  imperfect  character.  There 
is  absolutely  no  law  directing  or  permitting  the  mutilation  or  marlving 
of  coin  light  or  heavy.  There  is  a  provision,  however,  which  directs 
that  "every  person  who  fraudulently,  by  any  act,  way,  or  means, 
defaces,  mutilates,  impairs,  diminishes,  falsifies,  scales,  or  lightens 
the  gold  and  silver  coins  which  have  been,  or  Avhich  may  hereafter 
be,  coined  at  the  mints  of  the  United  States,  or  any  foreign  gold  or 
silver  coin  which  are  bj-  law  made  current  or  in  actual  use  and  circula- 
tion as  money  within  the  United  States,  shall  be  imprisoned  not  more 
than  two  years  and  fined  not  more  than  two  thousand  dollars." 

When  the  receiving  teller  has  counted  the  money,  checks,  etc.,  of 
liis  depositors,  the  amount  is  entered  in  a  book  presented  to  the 
depositor  for  that  purpose.  As  many  depositors  imperfectly  under- 
stand their  duties,  this  book  might  be  prefaced  with  some  instructions 
for  big  guidance.  The  following  instructions  have  been  suggested  by 
an  experienced  cashier: 

1.  If  you  wish  to  open  an  account  with  a  bank,  provide  yourself 
with  a  proper  introduction.  Well  managed  banks  do  not  open  accounts 
with  strang(^rs. 

2.  Do  not  draw  a  clicck  unless  you  linve  the  money  in  bank  or  in 


1T6  PRACTICAL   BANKING. 

your  possession  to  deposit.  Don't  test  the  courage  or  generosity  of 
your  bank  by  presenting  or  allowing  to  be  presented  your  check  for  a 
larger  sum  than  your  balance. 

3.  Do  not  draw  a  check  or  send  it  to  a  person  out  of  the  city, 
expecting  to  make  it  good  before  it  can  possibly  get  back.  Sometimes 
telegraphic  advice  is  asked  about  such  checks. 

4.  Do  not  exchange  checks  with  anybody.  This  is  soon  discovered 
by  your  bank;  it  does  your  friend  no  good  and  discredits  you. 

5.  Do  not  give  your  check  to  a  friend  with  the  condition  that  he 
is  not  to  use  it  until  a  certain  time.  He  is  sure  to  take  an  out-of-town 
check  from  a  neighbor,  pass  it  through  your  bank  without  charge 
and  give  him  your  check  for  it.  You  are  sure  to  get  caught.  Discount 
no  accommodation  note;  in  the  meaning  of  a  bank  it  is  a  note  for  which 
no  value  has  passed  from  the  endorser  to  the  drawer. 

6.  Do  not  give  your  Check  to  a  stranger.  This  is  an  open  door  for 
fraud,  and  if  your  bank  loses  through  you  it  will  not  feel  kindly 
toward  you. 

7.  When  you  send  your  check  out  of  the  city  to  pay  bills  write 
the  name  and  residence  of  your  payee,  thus:  "Pay  to  John  Smith  & 
Co.,  of  Boston."  This  will  put  your  bank  on  its  guard  if  presented  at 
the  counter. 

8.  Don't  commit  the  folly  of  supposing  that  because  you  trust  the 
bank  with  your  money  the  bank  ought  to  trust  you  by  paying  your 
overdrafts. 

9.  Don't  suppose  you  can  behave  badly  in  one  bank  and  stand 
well  with  the  others.     You  forget  there  is  a  clearing-house. 

10.  Don't  quarrel  with  your  bank.  If  you  are  not  treated  well  go 
somewhere  else ;  but  don't  go  and  leave  your  discount  line  unprotected. 
Don't  think  it  unreasonable  if  your  bank  declines  to. 

11.  If  you  want  an  accommodation  note  discounted  tell  the  bank 
frankly  that  it  is  not  in  their  definition  a  business  note.  If  you  take 
a  note  from  a  debtor  with  an  agreement,  verbal  or  written,  that  it  is 
to  be  renewed  in  whole  or  in  part,  and  if  you  get  that  note  discounted 
and  then  ask  to  have  a  new  one  discounted  to  take  up  the  old  one,  tell 
the  bank  about  it. 

12.  Don't  commit  the  folly  of  saying  that  you  will  guarantee  the 
payment  of  a  note  which  you  have  already  endorsed. 

13.  Give  your  bank  credit  for  being  intelligent  generally  and  un- 
derstanding its  own  business  particularly.  It  is  much  better  informed 
probably  than  you  supposed. 

14.  Don't  try  to  convince  your  bank  that  the  paper  or  security 
which  has  already  been  declined  is  better  than  the  bank  supposes.  This 
Is  only  chaff. 

Our  readers  perhaps  might  be  inclined  to  soften  the  expressions 
in  some  cases;  in  the  main  they  merit  consideration.    To  these  instruc- 


THE  RECEIVING   TELLER.  177 

tions,  however,  a  bank  might  add  I'egulations  or  by  laws  defining  more 
perfectly  the  relations  existing  between  itself  and  its  depositors.  Such 
by-laws,  when  they  are  reasonable  and  made  known  to  a  depositor  by 
inserting  them  in  his  pass  book,  where  he  has  the  fullest  opportunity 
to  read  and  understand  them,  have  the  force  of  a  contract  between 
the  parties,  so  tlie  courts  have  declared  on  many  occasions.  Among 
the  by-laws  that  might  be  adopted  the  following  are  suggested: 

First,  in  those  states  where  no  statute  exists  relating  to  the  subject, 
a  regulation  might  be  incorporated  in  the  book  relating  to  the  payment 
of  checks  after  the  death  of  the  drawer.  The  Massachusetts  statute 
provides  that  a  bank  is  authorized  to  pay  a  check  within  ten  days 
after  bis  death,  and  this  rule  might  be  adopted  without  the  taint  of 
staleuess,  or  other  imperfection. 

Another  rule  that  might  be  adopted  is  to  require  checks  drawn  by 
ihe  trustees  or  executors  of  estates  to  be  signed  by  all  of  them.  If  there 
are  two  executors  or  trustees,  the  very  object  of  creating  them  is  to 
secure  safety  by  joint  action.  Surely,  if  this  is  ever  required,  it  should 
be  in  the  withdrawal  of  a  bank  deposit. 

Another  regulation  might  be  added  pertaining  to  the  examination 
of  checks  of  depositors  returned  to  them  with  their  book  after  they 
have  been  entered  in  their  pass  boolv.  It  might  require  him  to  make 
an  examination  within  five  or  ten  days  or  other  period  after  receiving 
it,  unless  prevented  by  sickness  or  other  accident.  Elsewhere  we  have 
fully  shown  the  necessity  of  making  such  examinations  by  the  depositor 
himself,  and  not  intrusting  them  even  to  his  confidential  clerk  or 
brother. 

Another  regulation  might  relate  to  the  part  payment  of  checks. 
(1)  What  the  bank  shall  do  whenever  the  amount  is  insufficient  to 
p.iy  a  check  that  may  be  presented;  (2)  or  in  the  event  of  the  presenta- 
tion of  two  simultaneously;  (3)  or  through  the  clearing-house. 

Another  regulation  might  relate  to  the  effect  of  crediting  checks 
as  cash.  It  is  true  the  law  regards  such  crediting  only  as  provisional, 
and  in  the  event  of  their  non-collection  the  amount  can  be  charged 
back,  but  it  would  be  well  to  state  more  plainly  the  relations  assumed 
with  respect  to  such  checks. 

Another  regulation  might  be  added  prescribing  more  fully  the 
course  of  a  bank  in  collecting  checks  received  from  depositors.  One 
of  the  questions  raised  on  many  occasions  is  whether  the  receiving 
bank  has  the  right  to  send  a  check  to  the  bank  on  which  it  is  drawn 
for  payment.  This  right  is  denied  by  the  states  of  Pennsylvania, 
Colorado,  Texas,  and  Illinois.  The  reason  for  the  denial  is  that  as  the 
holder  of  a  note  would  not  think  of  sending  it  to  the  maker,  so  a 
bank  should  not  send  a  check  directly  to  the  drawee  bank  for  pay- 
ment. But  the  reason  is  faulty  because  the  drawee  bank  is  simply  a 
13 


178  PRACTICAL  BANKING. 

trustee  of  the  money  in  its  keeping,  and  is  as  ready  to  pay  it  over  to 
one  person  as  another.  The  principle  on  which  the  courts  have  pro- 
ceeded in  thus  cutting  banlis  off  from  the  right  to  send  checlcs  directly 
to  the  banks  on  which  they  are  drawn  is  the  greater  risk  of  loss;  but 
if  they  were  sent  to  another  for  collection  there  would  be  just  as  much 
danger  of  loss  through  this  agent  as  through  the  other.  The  regulation 
might  specify  that  in  a  place  where  only  one  bank  existed,  it  was 
authorized  to  send  checks  drawn  on  it  directly  to  the  drawee  bank  for 
payment;  and  in  places  where  there  :-e  two  or  more  banks  in  good 
standing  to  some  other  bank  than  the  one  on  which  the  check  is  drawn 
for  the  payment  of  the  same. 

Another  regulation  might  relate  to  the  payment  of  stale  checks, 
and  requiring  presenters  after  a  check  has  been  in  circulation  a  given 
number  of  days  from  i;:s  date,  ten,  twenty,  a  month  or  other  period,  to 
bring  some  additional  authority  from  the  maker  unless  he  had  previ- 
ously given  it  to  the  bank.  It  may  be  that  a  non-presentation  of  a 
check  might  be  noticed  and  some  direction  be  given  by  him  to  the 
bank  concerning  its  payment. 

Two  other  regulations  might  be  made  with  depositors,  the  one 
defining  the  authority  of  a  bank  to  surrender  bills  of  lading  for 
merchandise  given  to  secure  time  drafts  on  their  acceptance;  and  the 
other  permitting  a  bank  to  take  other  checks  drawn  on  reputable  banks 
or  bankers  in  exchange  for  notes,  drafts,  checks  and  other  instruments 
sent  for  collection. 

Lastly  may  be  mentioned  a  regulation  defining  the  duty  of  a 
bank  in  paying  the  notes  of  a  depositor  made  payable  there.  Different 
rules  have  been  declared  by  the  courts.  The  regulation  might  provide 
for  at  least  five  different  cases:  (1)  Notes  unendorsed;  (2)  endorsed 
notes;  (3)  where  the  deposit  is  insufficient;  (4)  when  the  deposit  after- 
ward becomes  sufficient;  (5)  when  notes  are  presented  after  their 
maturity. 

When  deposits  are  made  the  depositor  sometimes  waits  until  the 
counting  is  finished;  on  other  occasions  he  leaves  immediately.  Some 
banks,  though,  require  the  dealer  to  wait  until  his  deposits  have  been 
counted  in  his  presence.  Sometimes  deposits  are  left  containing  the 
dealer's  count  on  them;  if  they  are.  when  the  recount  is  made,  should 
there  be  a  deficiency,  the  depositor  must  abide  by  the  teller's  count. 

Not  infrequently  a  claim  is  made  by  some  depositor  for  a  larger 
sum  than  that  with  which  he  is  credited.  How  these  differences  arise 
is  often  mysterious.  The  deposit  teller  then  makes  a  general  and 
thorough  revision  of  all  his  figures,  checking  them  off  by  his  deposit 
tickets  and  going  over  his  additions.  If  the  error  cannot  be  discovered 
in  this  way  he  sends  a  letter  to  each  dealer  whose  deposit  may  possibly 
have  been  erroneously  entered,  and  if  the  error  still  remains  undis- 


THE   RECEIVING    TELLER.  179 

covered  the  casliier  is  informed,  and  perhaps  the  directors  at  their 
next  meeting.  The  search  is  continued  as  long  as  there  Is  any  chance 
of  detecting  their  error. 

The  boolcs  of  depositors  should  be  written  up  as  often  as  once  u 
month.  The  reason  for  doing  this  is  obvious.  Mistalies,  alterations 
and  forgeries  are  more  likely  to  be  discovered  when  the  drawing  of 
checks  is  fresh  in  the  drawer's  mind  than  at  a  later  period  when  the 
remembrance  of  transactions  has  faded  away.  Furthermore,  whenever 
it  is  possible,  this  work  should  not  be  done  by  the  receiving  teller,  but 
by  some  other  official,  in  order  to  test  the  accuracy  of  the  receiving 
teller's  work. 

Toward  the  close  of  the  day  depositors  multiply  in  number.  "First 
Come,  first  served,"  is  the  rule;  a  row  is  formed,  and  the  last  comer 
must  take  his  place  at  the  end  farthest  away  from  the  receiving  teller. 
Formerly,  when  the  state  banks  issued  notes,  and  counterfeiting  was 
a  more  general  practice,  the  business  of  assorting  and  counting  bank 
notes  was  a  more  dlthcult  practice  than  it  is  at  present.  No  assorting 
is  done  now  when  notes  are  received.  The  teller  merely  watches 
sharply  for  counterfeits.  Afterward  the  notes  are  assorted  into  pack- 
ages of  various  denominations  without  regard  to  the  bank  issuing  them. 
Such  is  the  perfection  of  the  national  bank  note  system,  that  the  note 
of  one  bank  is  as  good  as  that  of  another,  and  hence  there  is  no  occasion 
for  noticing  their  parentage. 

The  checks  on  country  banks  are  handed  over  to  the  corresponding 
clerk,  who  lists  them  in  his  letters  and  in  mail  blotters  for  charge  to 
the  appropriate  banks  in  the  collection  ledger,  unless  they  are  on 
dealers  of  their  own  bank.  In  that  case  they  are  often  charged  directly 
to  the  general  account  of  the  dealer. 

Gibbons  says  there  is  a  loose  practice  with  some  banks  with  respect 
to  a  deficit  or  excess  of  cash  in  the  daily  accounts  of  their  tellers. 
Small  sums  accrue,  which  are  thrown  together  in  a  box  or  drawer  and 
applied  to  the  payment  of  small  deficits.  These  are  not  noted  on  the 
face  of  the  day's  transactions.  lie  objects  to  this  mode  of  conducting 
a  banking  business,  and  well  he  may.  Nothing  short  of  exactitude 
should  be  allowed  in  commercial  accounts,  and  especially  in  a  bank. 
A  teller  should  be  required  to  find  his  error  if  possible.  A  ledger 
account  should  be  opened  with  each  teller,  in  which  any  surplus 
should  be  credited  under  its  actual  date,  or  any  deficiency  charged,  and 
(his  miglTt  be  periodically  balanced  by  a  transfer  to  profit  and  loss. 


180  PRACTICAL   BANKING- 


CHArTER  XIII. 
THE   NOTE   TELLER. 

The  note  teller  receives  the  letters  and  the  money  for  all  promissory 
notes  liquidated  at  the  bank.  In  small  banks  his  duties  may  be  blended 
Avith  tliose  of  the  receiving  teller.  And  again  the  duties  of  Doth  may  be 
performed  by  the  paying  teller.  In  other  words,  one  person  may 
perform  the  duties  assigned  in  a  larger  bank  to  the  three  besides 
several  assistants. 

There  are  two  kinds  of  notes.  Those  which  are  discounted  by  the 
bank,  and  those  which  are  deposited  l)y  the  owners  for  collection,  and 
for  whicli  tliey  are  to  receive  credit  when  they  are  paid.  The  foi'mer 
are  called  bills  discounted,  and  the  latter  collection  notes. 

In  large  banks  at  the  present  day  the  note  teller  does  not  have 
charge  of  the  notes  until  the  morning  of  the  day  of  maturity.  The 
bills  discounted  are  handed  to  him  early  on  the  morning  of  the  day  of 
their  maturitj'  by  the  discount  clerk.  They  are  usually  strapped 
together,  and  the  total  amount  of  the  notes  is  stated  in  pencil  on  the 
strap.  When  collected,  this  total  amount  is  credited  to  "bills  dis- 
counted" in  the  general  ledger.  Should  any  of  these  notes  not  be  paid, 
of  course  the  amount  to  be  credited  to  "bills  discounted"  will  be  just  so 
much  diminished. 

The  collection  clerk  each  morning  hands  to  the  note  teller  the 
notes  he  has  maturing,  and  with  a  ticliet  for  each  note,  or  with  a 
ticket  for  each  owner  of  notes. 

When  the  notes  are  entei'ed  they  are  arranged  by  the  note  teller  in 
the  order  of  the  names  of  the  payers.  The  note  teller  is  now  prepared 
to  receive  pnyment  of  the  notes  whenever  debtors  appear.  The  notes 
payable  at  the  bank  are  retained  ))y  the  teller  in  his  drawer,  and  those 
payable  at  other  points  in  the  city  are  sent  out  by  messengers  for 
presentation. 

The  note  teller  reaches  the  bank  in  time  to  make  the  entries  of 
remittances  by  the  morning's  mail  before  the  institution  is  opened  to 
the  public.  Tlie  following  is  the  usual  form  of  letter  received  now-a- 
days,  with  abl)reviations: 


THE  NOTE   TELLER.  181 

Delaware  River  Bank, 

Philadelphia,  June  30,  1899. 
H.  Morse,  Esq.,  eashier. 
Dear  Sir: 

Enclosed  find  for  our  credit: 

Peters,  Cashier on  Com $  9,400  00 

Ruffin,        "        "Am 10,000  00 

Luther,      "        "  Am.  Ex 1,575  60 

Simpson,  "        "  Met 14,263  70 

Corse  &Co Third  Nat 1,800  00 

Kerr Phx 2,740  00 


$39,799  30 
We  add  for  collection: 

Brown on  Thompson 3  ds %  1,250  00 

Green Burr  &  Co lOds 3,263  20 

Wilson July  10 2,249  75 

White 90  ds 242  90 

Kent Albany July  25 506  00 

Mother Buffalo Aug.  3 1,000  00 

Gray  &  Co.,  Hartford sight 2,600  00 

Roberts Port 10  ds 2,740  00 

Yours  truly, 

J.  J.  Jones,  Cashier. 

To  explain  them  fully,  these  items  for  credit  mean  checks  as  fol- 
lows: 

J.  Peters,  Cashier,  Sussex  Bank  of  Milford,  on  National  Bank  of  Commerce,  N.  Y.  $9,400  00 

T.  RuflBn,  Cashier,  Bank  of  Fullerton,  on  Bank  of  America 10,000  00 

Corse  &  Co.,  Richmond,  Tenn. ,  on  Third  National 1,800  00 

And  so  on 

The  collection  items  are  drafts  or  notes,  thus: 

A.  Brown  &  Co.,  draft  on  Thompson  Bros.,  at  3  days'  sight    $  1,250  00 

P.  Green  &  Sons  on  Burr  &  Co.,  10  days'  sight 3,263  20 

Wilson  &  Co.,  Note  due  July  10 2,249  75 

Kent  Bros,  (payable  at  Albany)  July  25 506  00 

Draft  on  Gray  &  Co.,  Hartford,  sight 2,b00  00 

This  letter  is  given  to  the  note  teller,  who  writes  his  initial  as  his 
receipt  for  each  check  that  he  talves  from  it  for  credit  to  the  remitting 
bank.  In  the  same  way,  all  letters  containing  cash  documents  are 
passed  into  his  hands,  and  the  proper  entries  are  made  from  them. 
In  the  Boston  system  of  bookkeeping,  which  will  soon  be  explained, 
the  entries  are  made  from  the  letter  itself.  The  total  footing  of  the 
letter  is  first  posted  in  the  Note  Teller's  Cash  Book,  the  letter  is  then 
handed  to  the  bookkeeper  who  again  posts  the  total  opposite  the 
dealer's  name,  and  afterward  the  letter  is  handed  to  the  corresponding 
clerk,  who  brings  all  the  letters  to  the  cashier  for  examination.  In 
many  banks,  the  president  goes  through  the  letters  received  the  pre- 
vious day;  in  other  banks,  the  president  is  shown  every  unusual  letter. 
It  is  important  by  this  system  to  have  the  letters  footed,  because  the 
letter  is  the  original  entry,  and  every  footing  is  from  the  letter.  The 
totals  of  the  letters  are  posted  by  the  note  teller,  and  again  by  the 
bookkeeper,  and  they  compare  the  footings. 


182  PRACTICAL   BANKING, 

Some   T>anks   send    notices   of   the   time    when    a   note   falls   due. 
This  notice  is  sent  in  compliance  with  the  following  Resolution: 

Resolved,  by  the  Associated  Banks  of  the  City  of  Philadelphia,  that  as 
soon  as  practicable,  after  discounting  paper  for  customers  or  others,  notice  of 
the  maturity  of  such  paper  shall  be  sent  to  the  maker  or  makers  thereof, 
whether  payable  at  bank  or  elsewhere. 

To  _ 

Your  note  for  $ is  held  by  the 

arctic  mattonal  mnk  of  pbila^elpbta, 

AND  WILL  BE  DUE  AT 

190 

BRING  THIS  NOTICE  WITH  YOU.  THIS  IS  THE  LAST  DAY  OF  GRACE. 

BANK  CLOSES  ON  SATURDAYS  AT  NOON. 

Formerly  this  was  done  more  generally  than  it  is  now.  The  business 
has  become  too  large  for  banks  to  continue  it.  Persons  who  give  notes 
are  supposed  to  know  when  they  become  due,  and  should  be  prepared 
to  pay  them  without  notification.  In  some  cities  the  custom  seems 
to  prevail  of  making  notes  payable  at  any  bank  in  town.  Especially 
is  this  the  case  in  Boston;  where  it  prevails  notices  would  seem  to  be 
necessary.  In  New  York  City,  however,  it  is  customary  for  merchants 
and  other  persons  to  make  their  notes  payable  at  a  specific  place,  and 
to  have  the  money  there  to  pay  them  at  maturity. 

When  notes  are  paid,  a  certified  checlv  may  be  used,  or  money.  A 
teller  should  preserve  tlie  notices  and  memoranda  of  his  transactions 
in  the  order  of  their  occurrence  until  his  cash  is  proved  at  the  end  of 
the  day.  They  may  serve  a  useful  purpose  in  refreshing  his  memory 
or  in  detecting  any  error  that  may  happen. 

When  a  note  is  paid,  the  bank  stamps  thereon  the  following: 

"PAID 
THE  MERCHANTS'  BANK." 

Of  course  a  great  many  incidents  and  irregularities  happen  in  con- 
nection with  this  department.  The  persons  who  ought  to  pay  perhaps 
forget  where  the  note  is  payable,  or  when,  or  the  amount.  Sometimes 
the  notice  is  delivered  to  the  wrong  person.  Some  merchants  write 
their  notes  payal>le  at  the  bank  where  they  keep  their  account. 

After  the  last  payer  is  dismissed  the  note  teller  closes  his  gate 
erases  from  the  cash  book  and  discount  tickler  the  notes  that  remain 
unpaid,  and  deliA'ers  them  to  a  notary  public  for  protest,  except  where 
no  eildorser  is  to  be  held. 


THE   NOTE  TELLER.  183 

The  protest  consists  in  presentinj;  tlu'  note  at  the  place  of  business 
of  the  drawer,  or  wherever  it  is  made  payable,  and  demanding  the 
money  for  it.  If  this  be  refused  the  note  is  attached  to  a  printed  legal 
form,  containing  the  following  particulars:  First,  a  true  description 
of  the  note,  so  as  to  ascertain  its  identity;  second,  an  assertion  that  it 
has  been  duly  presented  to  its  maker,  or  place  of  payment,  at  ma- 
turity, and  dishonored;  thir-.l.  the  holder,  or  the  person  giving  the 
notice,  looks  to  the  person  to  whom  the  notice  is  given  for  payment 
and  indemnity.  This  statement  is  essential  to  establish  the  claim  or 
the  right  of  the  holder  or  the  part}'  giving  notice,  for  otherwise  he 
will  not  be  entitled  to  any  payment  from  the  endorser.  It  will  be 
sufficient,  indeed,  if  the  notice  sent  necessarily  or  even  fairly  implies 
by  its  terms  that  there  has  been  a  due  presentment  and  dishonor  at 
the  maturity  of  the  note,  but  mere  notice  of  the  fact  that  the  note  has 
not  been  paid  affords  no  proof  whatever  that  the  note  has  been  pre- 
sented in  due  season,  or  even  that  it  has  been  presented  at  all.  The 
note  is  returned  to  the  banlv  on  the  following  day.  The  notary  sends 
notice  of  the  protest  to  all  the  endorsers  and  to  the  drawer  of  drafts, 
which  advises  them  of  their  liability  for  the  payment  in  case  of  the 
continued  default  of  the  first  debtor.  If  the  notes  should  be  paid 
wlien  presented  by  the  notary  he  returns  the  monej'  to  the  bank  on 
the  next  morning. 


184  PRACTICAL  BANKING. 


CHAPTER   XIV. 
THE  DISCOUNT  CLERK. 

As  we  have  seen,  the  profits  of  bauking  are  composed  of  interest 
on  money— in  other  words,  of  interest,  discount  and  exchange. 

The  loans  are  called  discounts,  because  the  interest  is  paid  in  ad- 
vance and  deducted  from  the  amount  due  to  the  borrower.  But  if  a 
bank  were  to  deduct  seven  dollars  from  a  hundred  dollar  loan,  pay- 
able a  year  after  date,  the  bank  would  receive  seven  dollars  for  a 
loan  of  only  ninety-three  dollars.  If  the  bank  paid  the  borrower 
$9.3.46,  this  sum  at  seven  per  cent,  interest  for  a  year  would  amount 
to  a  hundred  dollars,  the  sum  expressed  in  the  note.  Banks  are  per- 
mitted by  law  to  deduct  interest  in  advance  in  this  mannei",  at  the 
rate  prescribed,  without  rendering  themselves  liable  for  usury.  The 
difference,  therefore,  between  interest  and  discount  in  banlv  practice 
is,  the  former  is  a  sum  of  money  payable  for  the  use  of  money  at  the 
end  of  a  given  term,  while  discount  is  the  money  reserved  from  another 
sum  at  the  beginning  of  the  term  for  which  it  is  loaned. 

When  a  bank  discounts  a  note  the  interest  is  deducted  at  once,  and 
the  borrower  receives  credit  for  the  balance. 

The  offering  book,  containing  a  record  of  the  notes  offered  for  dis- 
count, we  have  described  elsewhere.  The  form  of  offering  book,  how- 
ever, is  not  the  same  in  all  banks.  Some  dispense  with  the  balance 
column,  and  some  add  another,  showing  the  liquidations  before  the 
next  discount  day.  Some  banlvs  enter  in  this  book  loans  already  made 
to  the  borrower  so  that  directors  may  have  before  them,  when  they 
meet,  all  the  essential  facts  necessary  to  transact  their  business  in- 
telligently. 

Accepted  paper  is  now  taken  by  the  discount  clerk,  who  first  ex- 
amines the  notes  for  filing  and  general  character,  and  then  "times" 
each  note  on  its  face.  The  notes  are  then  entered  in  what  is  termed 
the  "dealers'  discount  book,"  which  usually  is  ruled  to  permit,  first, 
the  maker's  name,  then  the  endorser's,  the  place  of  payment,  due  date, 
and  the  number  of  days  to  run.  discount,  amount  of  exchange  charged, 
and  net  proceeds.  For  the  latter  amount  there  is  a  separate  column 
for  each  of  the  ledgers,  so  that  all  the  amounts  belonging  to  any  one 
ledger  appear  only  in  one  column.  From  this  discount  book  the  dis- 
count clerk  makes  his  statement,  and  posts  his  ledger,  or  bill  book, 


THE   DISCOUNT  CLERK. 


185 


and  his  ticklers.  Before  puttiiifi  away  the  notes  he  "checks"  them 
back  on  the  "ticklers."  Those  "ticklers"  are  very  important  books. 
Why  they  have  been  so  called  is  scarcely  known,  but  proljably  from 
the  habit  of  ticking  or  checking  off  the  entries.  There  is  usually  one 
tickler  for  each  month  in  the  year,  and  one  or  more  pages  for  each 
day,  with  the  pages  on  the  left  side  reserved  for  notes  payable  in  the 
city,  and  those  on  the  opposite  side  for  notes  payable  out  of  town. 
The  total  footings  of  these  ticklers  will  present  the  total  amount  of 
"bills  discounted,"  and  the  proof  of  these  total  daily  amounts  is  taken 
at  least  as  often  as  once  each  month,  and  proved  with  the  general 
ledger. 

There  are  discount  ledgers,  which  are  opened  in  the  same  manner 
as  personal  ledgers,  but  embrace  the  accounts  only  of  customers  who 
get  notes  discounted.  They  contain  a  record  of  every  note  discounted, 
the  date  of  discount,  the  endorser  or  security  therefor,  and  the  time 
of  maturity.  They  also  show  the  liability  of  each  customer  as  en- 
dorser for  others  on  discounted  paper.  It  is  desirable  to  keep  this 
record  to  guard  against  losses.  If  two  dealers  should  exchange  notes 
or  endorsements  and  put  them  in  the  same  bank,  these  books  would 
bring  the  fact  to  light.  They  are  placed  on  the  directors'  table  on 
discount  days. 

DISCOUNT  LEDGER. 


Balioo*  u 

Drawer 
or  Kndoraar 


As  Drftwer  or  Eadorsei 


Number    When  Dui 


LIABILITY    LEDGER. 


F 


From  these  ledgers  the  discount  clerk  ascertains  the  amount  of 
discounts  set  down  in  the  offering  book.  He  keeps  daily  supervision 
over  them,  cancelling  the  paid  notes  as  fast  as  they  mature,  by  draw- 
ing a  line  across  the  figures  without  obliterating  the  record. 

Some  banks  number  their  notes  on  the  back  and  end  with  red  ink, 
and  file  them  in  packets.    A  good  many  banks,  however,  do  not  num- 


186  PRACTICAL   BANKING. 

ber  their  notes,  and  are  careful  not  to  mar  them,  even  by  a  pin  hole, 
so  that  if,  for  any  reason,  they  should  wish  to  dispose  of  them,  this 
could  be  done  without  the  paper  showing  any  indications  of  having 
been  in  the  possession  of  a  bank.  For  the  same  reason  also,  it  is  not 
desirable  for  a  bank  to  have  a  note  made  payable  to  its  own  order. 
When  thus  made,  it  would  appear  on  its  face  to  be  given  in  liquidation 
of  an  obligation  of  the  maker  to  the  bank.  It  is,  therefore,  desirable 
that  notes  be  made  to  the  maker's  order,  and  endorsed  to  the  bank  if 
taken  direct  from  him. 

Notes  are  also  transcribed  on  the  discount  ticklers;  each  note  is 
under  the  date  of  its  maturity,  with  a  number  and  name  of  the  payer 
and  amount.  The  ticklers,  which,  as  previously  explained,  are  books 
of  monthly  duration,  continue  to  receive  additions  by  new  discounts 
until  witliiu  a  few  days  of  the  transpiring  date.  They  are  kept  added 
in  pencil  until  that  time  and  are  finally  closed  in  ink. 

In  some  banks  notes  are  filed  without  number.  Those  of  each  day 
are  kept  in  a  separate  packet,  and  the  packets  are  arranged  in  a  con- 
secutive order  of  dates.  This  plan  is  regarded  more  convenient  when 
there  as  very  many  notes. 

The  discount  clerli  has  the  possession  of  the  greater  part  of  bills 
receivable,  in  which  the  resources  of  the  banlc  are  invested.  These 
are  in  his  custody,  are  deposited  by  him  at  night  in  a  compartment 
of  the  vault  assigned  to  him,  and  taken  out  on  the  next  morning  by 
himself.  If  any  of  the  officers  wish  to  examine  notes  they  do  so  in 
his  presence,  or  require  him  to  show  them.  By  this  metliod  his  re- 
sponsibility is  kept  distinct  from  that  of  the  other  clerks  and  officials. 

The  discount  clerk  is  in  frequent  intercourse  with  the  customers 
of  the  bank.  The  offerers  apply  to  him  after  adjournment  to  find  out 
what  disposition  has  been  made  of  their  application.  We  are  now 
speaking  of  the  larger  banks  where  such  a  clerk  is  employed.  In  a 
small  banlv  the  cashier  may  transact  the  entire  business  described  in 
this  chapter.  When  he  appears  at  his  desk  to  answer  the  questions 
of  applicants  on  occasions  when  the  money  market  is  tight,  his  duty 
is  by  no  means  a  pleasant  one.  Customers  press  toward  his  gate  at 
the  earliest  moment,  to  ascertain  whether  their  offerings  have  been 
accepted  or  rejected,  and  the  letters  A  and  R  enable  him  to  give  a 
very  short  answer.  When  notes  are  rejected  they  are  returned  to  the 
offerer  in  the  original  envelope. 

The  discount  clerk,  as  Avill  be  seen  from  the  foregoing  description 
of  his  duties,  does  not  receive  or  pay  out  any  money.  It  is  not  easy 
therefore  for  him  to  perpetrate  a  fraud  on  the  bank.  Gibbons  relates 
an  instance  whicli  occurred  in  the  second  Bank  of  the  United  States. 
The  discount  clerk  selected  some  notes  after  they  liad  been  discounted 
and  filed  away,  which  he  thouglit  would  be  least  likely  to  be  wanted 
before  maturity,   and   through  the  help  of  an   outsider,   hypothecated 


THE  DISCOUNT  CLERK.  187 

them  for  a  loan  of  monoy.  When  the  time  of  maturity  drew  near  he 
selected  others  of  longer  date,  and  substituted  them  for  those  first 
abstracted,  which  were  restored  to  their  proper  places  in  the  files. 
The  trick  was  discovered  by  the  maker  of  one  of  the  hypothecated 
notes,  who  called  at  the  bank  to  pay  it  before  maturity. 

Sometimes  a  bank  will  rediscount  a  portion  of  its  notes  with  other 
banks.  It  may  desire  to  get  possession  of  more  funds,  in  order  to 
pay  the  demands  of  depositors,  or  through  fear  of  an  increased  de- 
mand. In  other  words,  the  loans  which  it  may  have  made  are  trans- 
ferred to  another  institution. 

Discounted  notes  payable  in  other  cities  are  transmitted  by  mail, 
and  when  advice  of  their  payment  is  received  a  journal  entry  is  made, 
charging  the  collecting  bank  and  crediting  "bills  discounted"  in  the 
usual  commercial  form.  Discount  notes  which  are  payable  in  other 
cities,  are  transmitted  two  or  three  weeks  previous  to  their  maturity. 


188  PRACTICAL  BANKING. 


CHAPTER    XV. 
COLLECTIONS. 

The  collections  made  by  a  bank  are  an  important  part  of  its  busi- 
ness. They  may  be  divided  into  three  classes;  checks  on  home  banks 
that  are  to  be  paid  through  the  Clearing-house  or  in  the  smaller  places 
by  direct  exchange;  checks  on  out-of-town  banks;  and  notes,  drafts 
and  other  instruments. 

The  collection  of  checks  through  the  Clearing-house  is  described 
elsewhere.  In  the  smaller  places,  where  no  Clearing-houses  exist,  the 
banlvs  have  an  arrangement  whereby,  at  stated  times  checks  are  pre- 
sented to  the  drawers  and  exchanged,  and  the  differences  are  paid 
in  money  or  drafts  on  city  banks. 

The  collection  of  checks,  notes,  etc.,  on  out-of-town  banlvS  is  more 
difficult;  and  what  is  worse,  yields  but  little,  if  any  profit.  Formerly, 
the  business  was  very  profitable,  the  lowest  charge  in  many  banks  for 
collecting  checks  at  near  points  was  a  quarter  of  one  per  cent,  while 
a  charge  three  or  four  times  as  aiuch  Avas  very  common.  Even  two 
and  three  per  cent,  were  not  infrequent  charges  for  collecting  notes 
and  drafts  a  thousand  miles  distant. 

Banks  now-a-days  have  arrangements  with  each  other  for  con- 
ducting this  business.  Almost  every  bank  in  the  principal  cities  has 
an  arrangement  with  a  bank  in  every  other  place  of  much  importance 
in  the  United  States.  These  arrangements  differ  very  much,  depend- 
ing on  distance  and  other  circumstances.  A  convenient  record  should 
be  kept  of  all  arrangements.  Some  banks  keep  the  record  in  the  form 
of  the  correspondence  relating  to  the  terms,  but  while  it  is  desirable 
to  retain  this,  a  much  briefer  and  more  convenient  record  can  be  made 
in  a  boolv  for  that  purpose.* 

In  collecting  checks  the  first  step  is  their  proper  transfer  to  the 
bank.  Generally,  when  a  depositor  puts  checks,  notes  and  other  in- 
struments in  a  bank  for  collection,  he  desires  to  pursue  one  of  two 
courses— either  to  retain  his  ownership  of  them  and  use  the  bank  as 
his  agent  for  collecting  the  money,  or  of  parting  with  his  ownership 
at  once,  whereby  the  bank  in  which  they  are  deposited  becomes  the 
owner.    If  he  desires  to  retain   his  ownership  this  can  be  done  by 


*See  form  at  the  end  of  tliis  chapter. 


COLLECTIONS.  l8d 

endorsing  them  "for  deposit"  or  "for  collection,"  or  by  auj-  form  of 
words  clearly  indicating  his  purpose.  Whatever  maj'  be  his  reasons 
for  thus  endorsing  them  need  not  concern  us;  his  right  to  do  so  is  un- 
questioned, and  whenever  a  check  is  thus  endorsed,  it  is  within  his 
control  and  can  be  recalled  at  any  time  before  its  collection. 

Furthermore,  when  this  agency  or  trust  relation  exists,  the  money 
collected  belongs  to  the  principal  depositor;  and  should  the  agent  or 
any  sub-agent  fail,  while  having  the  money  in  its  possession,  he  could 
rightfully  claim  and  recover  it,  whenever  he  could  identify  it.  Thus 
its  trust  character  is  preserved  until  it  is  sent  to  the  first  bank,  where 
the  check  was  deposited,  and  is  mingled  with  other  funds  belonging 
to  the  depositor.  All  endorsements,  therefore,  which  are  intended  to 
preserve  the  ownership  of  paper  deposited  for  collection  have  that 
effect;  those  through  whose  hands  it  maj'  subsequently  pass  are  only 
agents  or  sub-agents  of  the  owner,  and  the  proceeds,  like  other  trust 
funds,  belong  to  him  unless  they  are  so  mingled  that  identification  is 
impossible. 

Again,  a  depositor  may  endorse  his  check  in  blank  and  thereby 
transfer  the  title  to  his  bank.  This  is  often  done.  When  it  is,  the  bank 
becomes  the  owner  and  if  collected  by  another  bank  to  which  it  was 
sent,  the  proceeds  can  be  applied  by  it  to  discharge  a  debt  owed  by 
the  sending  bank.  Its  right  to  do  this  was  long  ago  decided  by  the 
highest  federal  tribunal. 

Again,  a  bank  in  which  a  check  is  thus  deposited  with  a  blank 
or  general  endorsement  may  seek  to  control  it  by  converting  the  gen- 
eral, into  a  special  endorsement,  and  when  this  is  done,  its  course 
cannot  be  diverted  by  any  sul)sequent  endorsement  inconsistent  with 
the  one  thus  made. 

Many  banks,  however,  have  accounts  with  each  other,  as  indi- 
viduals have  with  banks,  and  are  debtors  and  creditors  to  each  other. 
When  this  relation  exists,  then  the  money  often  collected  by  them  as 
agents  is  sul)sequently  used,  whereby  they  render  themselves  debtors 
for  the  amount.  Why  do  banks  establish  the  debtor  and  creditor  rela- 
tion instead  of  continuing  to  preserve  the  agency  relation?  To  pre- 
serve the  agency  relation  the  money  collected  by  the  agent  must  not 
be  used  or  diverted,  but  kept  as  trust  money  and  transmitted  to  the 
owner.  Consequently,  the  money  becomes  unprofitable  to  any  bank 
through  whom  it  may  pass,  as  it  cannot  be  loaned  for  any  time  how- 
ever shoi't.  As  banks  prefer  to  use  it,  consequently  by  far  the  most 
general  relationship  existing  between  liauks  in  collecting  money  is  that 
of  debtor  and  creditor. 

Another  important  consequence  of  endorsing  checks  "for  collection" 
is,  the  endorsers  do  not  incur  any  responsibility.  An  endorsement  "for 
collection"  is  merely  a  direction  to  collect,  nothing  more.  If  such  a 
check  has  been  raised  before  depositing  it  for  collection  and  has  passed 
through  successive  collectors,  similarly'  endorsed,  the  payee  bank  can- 


190  PRACTICAL   BANKING. 

not  collect  the  money  of  them  on  the  discovery  of  the  alteration  if 
they  have  paid  it  over.  If  the  last  collecting  bank  has  the  money,  it 
could  not  keep  or  remit  the  same,  but  would  be  oliliged  to  refund  the 
excess  to  the  payee  bank.  If  it  had  remitted  the  amount  to  some  other 
bank,  or  perhaps  the  bank  that  first  received  the  check  for  collection, 
the  payee  bank  would  be  obliged  to  resort  to  the  bank  still  having  the 
money,  or  it  may  be  even  to  the  depositor  himself  for  the  excess.  As 
such  endorsements  have  a  meaning  so  limited,  they  have  become  dis- 
tasteful to  endorsees,  and  their  use  is  rapidly  passing  away;  and 
endorsers  have  returned  to  the  former  practice  of'making  the  regular 

endorsement  "Pay  to  the  order  of ,"  which  carries  responsibility. 

By  the  negotiable  instruments  law  enacted  in  1897  by  the  states  of 
New  York,  Connecticut,  Colorado,  and  Florida,  it  is  provided  that 
every  person  negotiating  an  instrument  by  delivery  or  by  a  qualified 
endorsement  warrants: 

1.  That  the  instrument  is  genuine  and  in  all  respects  what  it  pur- 
ports to  be. 

2.  That  he  has  a  good  title  to  it. 

3.  That  all  prior  parties  had  capacity  to  contract. 

4.  That  he  has  no  knowledge  of  any  fact  which  would  impair  the 
validity  of  the  instrument  or  render  it  valueless. 

A  word  concerning  the  crediting  of  checks  in  a  depositor's  pass- 
book, that  are  not  to  be  immediately  collected.  Once  this  was  not  done 
until  they  were  collected,  but  competition  for  business  in  many 
places  has  become  so  keen  that  banks  have  fallen  into  the  deplorable 
practice  of  crediting  them  as  cash  and  permitting  depositors  to  draw 
immediately  against  them.  Some  of  the  modern  smart  business  men. 
through  the  generosity  thus  shown  to  them  by  banks,  obtain  a*  large 
amount  of  funds  without  paying  any  compensation  whatever,  besides 
getting  their  checks  collected  without  charge.  Such  crediting,  however, 
is  regarded  only  as  provisional,  and  whenever  checks  are  not  paid  they 
are  charged  back.  Depositors  can  also  be  held  on  their  endorsements. 
The  lieu  of  a  bank  for  such  advances  on  any  money  that  it  may  have 
in  its  possession  is  unquestioned. 

After  receiving  checks  they  are  assorted  for  the  purpose  of  sending 
them  to  the  bank's  respective  correspondents  for  collection.  The  next 
step  is  to  enter  them  in  the  ledger  to  the  debtor  of  the  accounts  of 
the  banks  to  which  they  are  to  be  transmitted.  Thoy  are  now  ready 
to  be  sent  away.  Those  sent  to  each  bank  are  accompanied  with  a 
letter  briefly  describing  them.*  If  any  special  directions  are  needful 
concerning  their  collection,  these  are  added. 

In  selecting  agents  to  make  collections  a  bank  must  exercise  care, 
and  if  negligent  in  this  regard  is  responsible  for  any  loss  that  may  re- 
sult.   But  if  a  l)ank  should  be  neglectful  and  select  an  agent  whose 


*See  p.  19G  for  letter. 


COLLECTIONS.  191 

conduct  (llfl  not  justify  the  trust  reposed  in  him,  who  should  collect 
the  money  and  fail  or  divert  the  same,  whereby  it  could  not  be  re- 
covered by  the  sending  bank,  it  would  be  responsible  to  its  depositor. 

Very  often  an  agent  to  which  checks  and  other  instruments  are 
transmitted  for  collection  are  sent  by  it  to  some  other  bank  for  that 
purpose,  located  nearer  to  the  place  of  the  drawees,  or  where  they 
are  payable.  And  before  the  collection  is  completed  and  the  proceeds 
are  sent  to  the  second  bank,  it  may  fail.  Who  shall  be  responsible  for 
the  loss?  Two  rules  prevail  in  the  different  states.  In  the  smaller 
number  the  second  bank  is  responsible  to  the  first  bank  for  any  loss 
occasioned  by  the  failure  of  the  third  bank,  or  sub-agent,  and  this  is 
the  federal  rule;  in  a  larger  number  of  states  every  agent,  or  sub- 
agent,  performs  its  duty  when  exercising  proper  diligence  in  selecting 
another  agent  to  assist  in  making  the  collection.  For  example,  if  a 
check  was  deposited  in  a  bank  in  Philadelphia,  drawn  on  a  bank  in 
New  York,  a  do'.en  miles  from  New  York  City,  the  Philadelphia  bank 
would  be  justified  in  sending  the  check  to  a  reputable  bank  in  New 
York  City  for  collection.  The  depositor  would  have  no  reason  for  as- 
suming that  the  Philadelphia  bank  had  an  arrangement  with  a  bank 
in  Newark  for  making  collections  in  that  place.  Nor  would  the  law 
require  the  Philadelphia  bank  to  send  the  check  to  a  bank  there  for 
collection.  So,  too,  the  New  York  bank  would  be  justified  in  sending 
the  check  to  a  reputable  bank  in  Newark;  it  would  not  be  required  to 
make  the  collection  directly  itself.  And  if  the  Newark  bank  should 
fail  after  collecting  the  money  and  before  sending  the  amount  to  the 
New  York  bank,  it  would  not  be  liable  to  the  Philadelphia  bank  for 
the  default  of  the  Newark  bank,  nor  would  the  New  York  or  Phila- 
delphia bank  be  liable  to  the  depositor.  But  in  some  states  the  New 
York  bank  would  be  liable  to  the  Philadelphia  bank,  and  this,  we  re- 
peat, is  the  federal  rule.  It  was  first  established  by  the  highest  court 
In  New  York  in  1S39. 

When  notes  are  received  for  collection  the  bank  treats  them  some- 
what differently  from  checks.  They  are  first  entered  by  the  collection 
clerk  in  the  customers'  book,  after  careful  examination.  Informality 
of  endorsement,  obscurity  of  date,  or  other  accident  might  render  the 
bank  liable  to  the  holder,  although  it  was  acting  merely  as  a  collection 
agent.  The  clerk  must  scrutinize  every  note  carefully  before  enter- 
ing it,  and  must  always  require  the  final  endorsement  of  the  owner, 
so  th.at  it  may  not  be  placed  to  the  wrong  credit  when  due.  Banks 
generally  will  not  receive  for  collection  notes  that  have  been  dis- 
figured or  changed  after  issue  by  the  drawer;  nor  will  they  receive 
them  from  strangers  on  any  terms.* 


♦Promissory  notes  are  transferred  by  endorsement  from  one  mer- 
chant to  another  in  settlement  of  debts,  until  the  time  for  their  ma- 
turity, when,  of  course,  they  must  be  presented  for  payment.    There 


l92  PRACTICAL  BANKING. 

The  clerk  marks  on  each  note  the  date  of  its  maturity.  If  he 
should  mark  it  one  day  too  late,  and  the  drawer  should  fail  to  pay, 
the  bank  would  be  liable  to  the  owner,  because  the  notice  of  the  pro- 
test to  the  endorsers  would  be  too  late  to  hold  them.  A  careful  clerk 
will  revise  his  "timing"  of  notes  so  as  to  guard  against  any  error  of 
this  kind. 

Dishonest  customers  have  been  known  to  mark  a  wrong  date  of 
maturity  on  notes  for  the  purpose  of  "catching"  the  bank;  in  other 
words,  of  maliing  it  liable.  The  bank  could  not  escape  by  showing 
that  the  wrong  date  was  the  customer's,  without  proving  that  he  in- 
tended to  render  the  bank  liable.  It  must  be  exact  in  its  own  busi- 
ness, and  cannot  escape  by  showing  that  it  adopted  the  errors  of 
others. 

After  the   notes   have   been   "timed,"   they   are   numbered   on   the 


are  several  varieties  of  endorsement  which  may  be  briefly  mentioned. 
An  endorsement  may  be  (1)  in  full,  or  (2)  in  blank;  it  may  be  (3)  abso- 
lute, or  (4)  conditional;  it  may  be  (5)  restrictive;  it  may  be  (6)  without 
recourse  on  the  endorser;  and  there  may  be  (7)  joint  endorsements  of 
the  instrument;  (8)  successive  endorsements,  and  (9)  irregular  ones. 
An  endorsement  in  full  mentions  the  name  of  the  person  in  wliose  favor 
it  is  made,  and  to  whom,  or  to  whose  order,  the  sum  described  in  the 
note  is  to  be  paid.  An  endorsement  in  blanlc  consists  simply  of  the 
name  of  the  endorser  written  on  the  back  of  the  instrument.  "The 
receiver  of  a  negotiable  instrument  endorsed  in  blank,  or  any  bona  fide 
holder  of  it,  may  write  over  it  an  endorsement  in  full  to  himself^  or  to 
another,  or  any  contract  consistent  witli  the  character  of  an  endorse- 
ment, but  he  could  not  enlarge  the  liability  of  the  endorser  in  blank 
by  writing  over  it  a  waiver  of  any  of  his  rights,  such  as  demand  and 
notice."  By  an  al^solute  endorsement  the  endorser  binds  himself  to  pay 
on  no  other  condition  than  the  failure  of  the  prior  parties  to  do  so,  and 
of  due  notice  to  him  of  their  failure,  while  a  conditional  endorsement 
contains  some  other  condition  to  the  endorser's  liability.  An  endorse- 
ment may  be  so  worded  as  to  restrict  the  further  negotiability  of  the 
instrument;  it  is  then  called  a  restrictive  endorsement.  The  words 
"for  collection,"  which  are  frequently  written  on  notes  that  are 
put  in  a  bank  to  be  collected,  render  the  endorsement  restrict- 
ive. The  endorser  in  such  a  case  may  prove  that  he  is  not  the 
owner  of  the  note,  and  did  not  mean  to  give  a  title  to  it  or  its  proceeds 
when  collected.  Such  an  endorsement  merely  makes  the  endorsee  agent 
for  the  endorser  in  collecting  the  note.  The  sixth  kind  is  a  qualified  en- 
dorsement, or  endorsement  without  recourse.  This  consists  in  writing 
the  words  "without  recourse,"  or  "at  the  endorsee's  own  risk"  on  the 
back  of  the  note.  The  endorser  is  then  a  mere  assignor  for  its 
payment.  A  joint  endorsement  is  made  when  a  note  is  payable 
to  several  persons  who  are  not  partners.  Successive  endorsements  are 
those  made  by  several  persons  on  a  note,  the  legal  effect  of  which  is 
to  sul)ject  them  as  to  each  other  in  the  order  they  endorse.  The  en- 
dorsement imparts  a  several  and  successive,  and  not  a  joint  obligation. 
Lastly  may  be  mentioned  irregular  endorsements,  which  may  originate 
in  various  ways.  But  in  all  cases  an  endorser  guarantees  the  genuine- 
ness of  all  the  preceding  endorsements.— See  Daniel  on  Negotiable  In- 
struments, section  694. 


COLLECTIONS. 


193 


back  and  end.  and  recorded  in  the  COLLECTION  REGISTER  a  page  of 
which  is  elsewhere  given.  From  tlii.s  book  the  note.s  are  copied  into  the 
TICKLERS,  forms  of  which  are  herewith  shown : 

COLLECTION    TICKLER. 


FORM    NO. 

Monday 

38. 

_189 

BahiNo. 

PATER 

FOR  WHOM  COLLECTED 

ADDRESS 

IrL-r^  I"- 

Ex. 

AMOUNT  1       HEHARKS 

COLLECTION   TICKLER. 

THUBSDAY, ISO 


or  L.u.r  Payer.  Where  P>;>ble  To  Wbom  Senl.  For  Whom  CollecUd  Amount.     I  Ck.         Remuk 


DISCOUNT    TICKLER. 
Thursday 1S9 


FORM    NO.  39. 

UANK  No. 

PATER. 

ADDRESS. 

ENDoasSR  oa  Colu-tbilu.. 

Amount. 

Iirr. 

REMARKS 

1 

1 

1 

Discount  Tickler 


FORM   99. 

■MONDAY, 

.189 

No.  or  D.l. 
of  L.it.r 

Pajor 

Eodorsei 

Where  P.yaWo 

To  Wbom  Sent 

Amount 

Ck  1  u.uiii-:3 

1 

1 

1 

1 

1 

1 

13 


Id4  PRACTICAL  BANKING. 

Notes  should  be  deposited  ten  days  or  longer  before  maturity,  so 
that  there  may  be  time  enough  to  pass  them  through  the  several  books 
in  the  bank,  and  to  serve  notices  on  the  payers,  though  this  practice, 
as  we  have  already  remarked,  is  not  so  general  as  it  once  was.  Mer- 
chants, however,  are  constantly  receiving  short-time  drafts,  and  these 
cannot  be  deposited  long  before  the  time  of  payment.  Other  circum- 
stances often  prevent  their  deposit  until  very  near  the  time  of  ma- 
turity, for  example,  the  pledging  of  them  to  secure  loans. 

The  clerk  of  this  department  is  responsible  for  the  safekeeping 
and  production  at  all  times  of  any  note  or  draft  deposited  in  the  bank. 
If  payable  in  the  city  where  the  bank  is  located,  he  can  produce  it;  if 
sent  elsewhere  for  collection  he  can  show  what  he  has  done  with  it. 

Notts  or  drafts  which  are  payable  in  another  place  are  in  some 
banks  recorded  in  a  foreign  collection  register.  In  those  doing  a 
smaller  business  the  regular  collection  register  may  be  made  to  suffice 
by  a  specta!  column  ruling.  In  the  foreign  collection  register  are 
recorded  the  place  of  payment,  and  the  name  of  the  correspondent  to 
whom  the  paper  is  sent  for  collection,  with  the  date  of  its  transmis- 
sion. In  a  small  bank  a  column  is  provided  in  which  to  record  the 
fact  and  date  of  payment,  or  of  return  if  unpaid.  In  other  small  banks, 
the  foreign  collection  register  may  contain  the  only  record  of  such 
paper,  obviating  entries  against  the  collecting  bank,  until  payment  is 
advised.* 

It  is  the  practice  of  many  banks  to  make  their  collections  for  a 
district  or  county  through  one  bank  which  has  established  correspond- 
ence with  all  parts  of  it.  But  the  large  banks  desire  so  far  as  possible 
to  make  their  collections  direct.  Their  notes  are  then  presented  more 
promptly,  returns  are  received  more  quickly,  and  country  business  is 
cultivated  more  successfully  by  thus  having  reciprocal  accounts. 

"When  a  bank  is  employed  by  another  to  collect  notes  within  a 
particular  district,  the  clerk  opens  another  book  and  records  on  the 
page  appropriated  to  the  National  Bank  of  Albany,  for  example,  all 
notes  that  fall  within  the  circuit  allotted  to  it.  He  stamps  or  writes  on 
the  back  of  each  note  below  the  other  endorsements, 


*See  form  at  the  end  of  this  chapter. 

Pay  the  National  Bank  of  Albany,  Albany,  N.  1 

Or  Order,  for  Collection  for  Account  of 

ARCTIC  NATIONAL  BANK,  N.  Y. 

THOMAS  JONES,  Cashier. 


COLLECTIONS. 


195 


After  the  letter  enclosinp:  the  notes  has  been  copied  it  is  sent  by 
mail  to  the  collecting  banlv. 

When  drafts  or  notes  for  collection  are  payable  at  places  where 
the  bank  has  no  regular  correspondent,  they  are  sent  to  a  bank  in  such 
place  "for  collection  and  remittance."  If  there  is  no  bank  or  banker 
of  established  credit  there,  tlie  collection  would  not  be  received.  When 
the  note  or  draft  is  paid,  the  collecting  bank  usually  remits  at  once  a 
check  for  the  amount,  less  the  charge  for  exchange,  if  any.  The  check 
will  be  on  a  liank  either  in  a  city  from  whence  the  collection  has 
come,  or  on  such  other  point  as  instructed  by  the  bank  owning  the 
paper.  The  bulk  of  checks  remitted  for  collections  are  drawn  on 
New  York,  and  many  on  Boston  or  Philadelphia.  Such  collections  are 
desirable  at  points  where  a  surplus  of  exchange  is  created,  as  they 
afford  a  means  of  working  it  off  at  a  small  profit. 

When  tliey  are  not  paid,  usually  they  are  returned,  or  held  for 
further  instructions.  When  returned,  the  following  form  has  been 
found  very  useful: 


Jfo. 


COLLECTION  RETURNED  BY 

Indiana  National  Bank. 


Indianapolis,. 


.1900. 


Reason  for  non-payment,  if  any  given, 
endorsed  on  bach  of  item. 


The  best  plan  of  using  the  slip  is  to  print  it  in  a  book  form,  six  or 
twelve  on  a  page,  and  as  many  pages  as  may  be  desired.  Then  a 
carbon  copy  is  taken  of  a  page  and  retained.  The  mode  of  making 
this  copy  is  simple  indeed.    A  carbon  sheet  is  put  beneath  a  page  of 


196 


PRACTICAL   BANKING. 


forms,  and  in  filling  out  these  every  mark  is  transferred  to  another 
page  beneath  the  carbon  paper.  This  sheet  is  fastened  securely  in 
the  book  and  thus  a  perfect  record  of  the  slips  is  preserved. 

Instead  of  using  the  collection  register  for  preserving  a  record  of 
the  collection,  the  following  form  is  now  used  quite  extensively: 


THE  CAPITAL  NATIONAL  BANK. 


J89 


(T*  enctote  for  coUtetion  and  eredit.  items  a*  aUiUd  I 


•  TtMa  HA 

RKCD  1  flO  raOrOT.     OO  flOT  .ROTCST  « 

»T  ITIM  UHOCIl  TtN  OOLLARt. 

1    1 

■^^^ 

Nnmbfii. 

DRAWEE. 

EN  DOBS  EE. 

PATEB. 

AUOOTIT. 

• 

The  mode  of  using  it  is  so  apparent  that  no  lengthy  explanation 
is  needful.  The  blank  is  filled  up  and  by  the  carbon  process,  which 
has  just  been  explained,  a  complete  record  is  transferred  to  the 
page  beneath  the  carbon  paper.  Generally,  two  forms  are  printed  on  a 
page,  as  will  be  seen  from  the  folowiug  cut: 


THE  CAPITAL  NATIDNALBANK 


ITIM< 

m 

PKCHKNOPKO 

TCIT  DS  MOT  nOTIt 

»TIT» 

»iim 

B 

M 

'   .c_»> 

,..«..                       ».«.,»         1      ..«» 

_ 

I  ^  \ 

1  tXi  4 

1 

a  C?  \ 

1  ^  1 

1 

1  3;| 

t 

"  THE  CAPITAL 'nATJONA 

r\ 

BANK 

iisa 

: 

i 

B'/J^Syl 

„ 

»,rr»»"jroVf5'rn7«o''T"p«"u5i"r,v','i'."« 

....u 

II^ 

■  «i,u«.-  1 

o..w(»                  in«oiisea            ».[■ 

QlUbiNAt-^^fi 

Sul^ra 

■  ~t 

1 

W'  — 

aK^jsl 

^ 

UalHUV 

_  -"jl ,■ 

V                        1 

IHHIH' 

The  question  has  been  often  asked,  though  not  clearly  decided 
by  the  courts  until  a  few  years  since,  is  a  bank  to  be  regarded  as 
negligent  which  does  not  send  collections  by  the  shortest  and  most 
direct  course?  As  is  well  known,  banks  prefer,  for  obvious  reasons 
when  making  collections,   to   keep  within  the  circle  of  their  corre- 


COLLECTIONS.  197 

spondents;  and  in  doing  so  often  sond  to  a  correspondent  at  some 
other  place,  when  having  none  at  the  place  of  location  of  the  drawee 
bank,  hoping  that  it  may  have  an  arrangement  with  a  banli  in  such 
place  for  making  collections.  But  it  may  happen  that  the  second  bank 
has  none  there,  nor  the  third  bank,  which  receives  it,  nor  the  fourth.— 
in  truth,  it  maj'  pass  through  half  a  dozen  or  more  before  reaching  a 
bank  in  the  same  place  as  the  one  on  which  it  is  drawn.  The  follow- 
ing diagram  represents  the  travels  a  few  years  since  of  some  checks 
among  banks  in  Ohio: 


A  week  or  more  may  be  spent  in  sending  and  collecting  a  check 
drawn  on  a  bank  a  few  miles  from  the  bank  in  which  it  was  first  de- 
posited. Suppose  in  consequence  of  this  delay  the  drawee  bank  should 
fail  before  the  arrival  of  the  check,  but  which  would  have  been  re- 
ceived in  time  and  paid  if  its  transmission  had  been  direct,  is  the  first 
bank  to  be  regarded  as  negligent  in  making  the  collection,  and  re- 
sponsible for  the  loss?  The  courts  in  Nebraska  have  so  decided.*  If 
those  of  other  states  are  likely  to  maintain  the  same  view,  evidently 
banks  must  exercise  greater  care  or  have  some  understanding  with 
their  depositors  in  order  to  avoid  loss. 

The  important  (luestion  remains  for  consideration.  What  shall  a 
bank  receive  in  payment  of  a  check,  note  or  other  instrument?  With- 
out special  authority,  or  shielded  by  usage,  a  collecting  bank  can  re- 
ceive only  money  in  payment.  | 

But  this  is  not  the  law  everywhere.  In  some  states  a  bank  can 
take  another  check  from  a  bank,  banker,  other  corporation  or  person 
indifferently  as  conditional  payment.  And  wherever  Clearing-hoiises 
exist,  checks  are  usually  sent  through  them  for  collection  which  are 
drawn  on  the  members.  If  they  are  drawn  on  individuals  who  are  not 
engaged  in  the  banlving  business,  or  private  bankers,  or  nouclearing- 


♦First  National  Bank  v.  Miller,  37  Neb.  500.  See  a  good  paper  on 
this  subject  by  T.  B.  Paton,  in  Proceedings  of  American  Bankers'  Asso- 
ciation. 1893,  p.  46. 

•fin  Whitney  v.  Esson,  99  Mass.  308,  the  court  declared  that  "it  is 
not  a  reasonable  usage  that  one  who  collects  a  draft  for  an  absent  party 
should  be  allowed  to  give  it  up  to  the  drawee  and  sacrifice  the  claim 
which  the  owner  may  have  no  prior  parties,  upon  the  mere  receipt  of  a 
check  which  may  turn  out  to  be  worthless." 


198  PRACTICAL  BANKING. 

house  banks,  they  are  presented  for  payment,  and  either  they  are  paid 
or  a  checli  is  taken  Tyhich  is  drawn  on  a  bank  that  is  a  member  of  the 
Clearing-house,  or  which  clears  through  a  member. 

As  the  usage  varies  banks  ought  to  know  the  law  in  their  re- 
spective states,  and  whenever  only  money  can  be  safely  received,  to 
insist  on  its  payment,  or  to  obtain  authority  from  their  depositors  for 
whom  collections  are  made  to  receive  other  checks  in  payment.  All 
difliculty  might  be  removed  by  a  contract  with  depositors  inserted  with 
others  of  a  kindred  nature  in  their  pass  books. 

A  closing  remark  concerning  charges  for  collection.  Every 
banker  knows  that  the  present  method  of  collecting  without  charge 
and  of  making  free  advances  on  collection  items,  expecting  that,  in 
the  indefinite  future,  the  so-called  depositors  will  really  have  profitable 
balances  on  which  enough  can  be  made  to  equalize  all  former  gen- 
erosity, is  utterly  indefensible.  It  is  easy  enough  to  introduce  a  re- 
form, only  one  condition  is  needful— harmonious  action.  So,  too, 
nothing  is  easier  than  to  adopt  practicable  plans  for  co-operative  action 
in  making  collections  in  the  larger  places  and  thereby  greatly  lessen 
the  expenses;  the  only  condition  in  adopting  them  is  the  willingness  of 
all  banks  to  unite.  Though  constantly  admitting  that  they  ought,  none 
are  ready  to  act.  Each  is  afraid  that  some  other  will  gain  an  advan- 
tage. Until  they  are  willing  to  unite,  nothing  is  more  profitless  than 
to  form  plans  for  co-operative  action. 

The  following  letter,  written  by  Robert  L.  Archer,  assistant  cash- 
ier of  the  First  National  Bank,  Huntington,  W.  Va.,  and  first  published 
in  The  American  Banker,  relating  to  the  collection  of  country  checks  is 
worthy  of  presentation  here : 

The  cost  of  collection  of  these  checks  should  rest  in  one  or  two 
places,  either  with  the  drawer  of  the  check  or  the  person  who  cashes 
or  receives  credit  for  it.  They  are  the  persons  who  receive  the  direct 
benefit,  and  should  stand  the  cost.  In  no  event  should  the  banks  bear 
the  cost  without  remuneration.  In  my  opinion,  the  banks  should  charge 
on  all  foreign  checks  they  may  receive,  and  send  them  for  collection 
direct  to  the  points  on  which  drawn,  except  those  points  which,  by  reason 
of  their  location  and  other  local  reasons,  might  be  able  to  organize  them- 
selves into  country  clearing  houses.  In  that  event  the  item  should  be 
sent  either  to  the  clearing  house  or  the  clearing  house  bank  designated 
to  receive  them. 

I  append  a  copy  of  an  agreement  made  by  the  banks  of  this  city  in 
May,  1895.  That  agreement  has  been  in  continuous  operation  ever 
since  that  time.  Under  it  the  revenue  derived  from  exchange  charges 
is  quite  satisfactory.  By  its  terms  we  refuse  to  receive  from  our 
reciprocal  correspondents  items  other  than  those  whicli  originate  with 
them.  If  they  do  send  us  items  received  by  them  from  other  banks 
we  charge  them  the  schedule  rate  on  such  items.  We,  of  course,  decline 
to  collect  for  other  banks  any  items  other  than  those  on  this  point. 

Now.  if  the  banks  in  the  smaller  cities  and  towns  all  over  the 
country  would  unite  on  a  plan  like  thi.s,  they  would  soon  force  all 
banks  to  send  direct,  or  else  through  country  clearing-houses  that 
might  be  established. 


COLLECTIONS.  199 

It  is  esential  to  the  universal  adoption  of  this  plan  that  the  banks 
should  charge  on  each  foreign  check  cashed  or  deposited.  They  should 
charge  enough  to  reimburse  them  for  the  cost  of  collection  and 
enough  in  addition  to  pay  for  the  use  of  the  raonej-  until  returns  are 
received. 

I  have  before  me  as  I  write  a  check  drawn  on  our  bank  and  de- 
posited in  Columbus.  O.  That  city  is  only  l.")(J  miles  northwest  of  us. 
However,  the  Columbus  bank  sent  it  to  I'hiladelphia,  which  is  several 
hundred  miles  east  of  here;  Pliiladelphia  sent  it  to  Baltimore;  Balti- 
more sent  it  to  Piedmont,  W.  Va.;  Piedmont  sent  it  to  Parkersburg.  "W. 
Va.;  Parkersburg  sent  it  to  Charleston.  W.  Va.,  and  Charleston  sent 
it  home.  Each  bank  was  trying  to  collect  the  item  without  cost. 
However,  Charleston  had  to  "hold  the  bag,"  and  paid  the  regular  rate 
on  the  check. 

The  plan  will,  perhaps,  be  condemned  by  those  banks  who  attempt 
to  collect  on  all  the  points  in  their  State,  and  often  on  points  in  other 
States,  and  then  unload  these  items  on  their  reciprocal  accounts,  ex- 
pecting them  to  remit  exchange  on  request  without  cost. 

The  plan  has  the  advantages  of  simplicity  and  an  adequate  return 
for  the  time  and  labor  expended. 

Below  find  a  copy  of  the  agreement  referred  to: 

The  undersigned  banks  in  the  city  of  Huntington  have,  by  agree- 
ment, adopted  the  following  rules  relative  to  the  handling  of  checks, 
cash  items  and  collections  received  from  correspondents  and  others: 

(Effective  from  this  date.) 

1.  From  correspondents  with  whom  we  maintain  reciprocal  rela- 
tions we  will  continue  to  receive  at  par  items  on  this  city  that  are 
received  from  their  depositors,  or  that  originate  within  the  State's 
limits. 

2.  We  cannot  take,  except  for  collection  and  remittance  when  paid, 
items  on  other  banking  points  in  this  section. 

3.  We  v.'ill  expect  our  correspondents  of  reciprocity  to  refuse  to  re- 
ceive Huntington  items,  except  from  their  local  clientage,  requesting 
banks  and  firms  outside  of  State,  to  send  for  collection  direct. 

4.  On  all  cash  items  and  collection  sent  us  by  banks  and  firms  for 
remittance  in  New  Yorlv  or  Cincinnati  exchange  on  day  of  payment, 
the  following  charges  will  be  made: 

On  all  sums  of  .$100  and  under,  1."  cents. 

On  all  sums  of  .?100  and  up  to  .«."»(i(».  1.3  ci>nts  per  .?100. 

On  all  sums  of  $500  and  over,  1-10  of  1  per  cent. 

5.  To  cover  postage,  work  and  cost  of  presenting,  a  charge  of  ten 
cents  per  single  item  will  be  made  on  mercantile  collections  returned 
unpaid. 

FIRST  NATIONAL  BANK, 
HUNTINGTON    NATIONAL    BANK. 

Huntington,  W  Va.,  May  1,  IS'Jo. 


200 


PRACTICAL  BANKING. 


The  following  forms  are  also  used  in  making  collections.     Form  32 

[LEFT  PAGE.] 


Form  sb. 

COPV..- 

COLLECTION 

TED  IflflS^BY  LFVEY  PfiO'S  *    CO..  INOIANABOUS.    -VD. 

Wheo  Received. 

.Number 

ACCOUNT  OF 

No.  or  D.t. 
of  Letter. 

MAKER  OR  DRAWEE 

PAYABLE  AT 

00 

01 

02 

OS 

04 

on 

00 

[LEFT  PAGE  ] 


DOMESTIC 


r.O.  ADDRESS. 


01 


09 


03 


04 


06 


is  a  Domestic  Collection  Register.  The  book  is  used  for  keeping  a 
record  of  collection  items  left  with  the  bank  by  its  customers.  This 
register  begins  with  00  and  extends  to  99  in  two  leaves,  and  is  thus 
printed  to  the  end.  After  99  is  reached  additional  numbers  are  easily 
formed  by  adding  the  proper  prefix  to  the  printed  numbers.  Thus  156  is 
formed  by  adding  1  to  the  56  on  the  fourth  leaf.  Of  course,  a  similar 
number  is  given  to  each  item  before  the  record  of  it  is  made  in  the  book. 
The  numbering  of  the  items,  especially  in  large  banks,  is  done  with  a 
hand-numbering  machine.  The  following  cut  represents  one  of  these 
machines : 


Style  of  Figures : 

12346 
12345 

12345 


COLLECTIONS. 


201 


REGISTER. 


[RIGHT  PAGE] 


When  Seat         D&te.        Time  Due.  Amount.  When  Paid  REMARKS 


COLLECTIONS. 


[RIGHT  PCG"] 


Pate 

Time. 

DUE. 

AMOUNT. 

te.™t 

Exchan^ 

R«miu«(] . 

REMARKS. 

"When  a  collection  is  paid,   another  stamp   is   nsed   for  a   similar 
purpose. 


This  machine  consists  of  an  automatic  ribbon,  the  frame  of  which 
is  cast  iron,  heavily  japanned,  the  dating  wheels  and  die  are  of  hardened 
brass,  and  the  indicators  are  of  polished  nickel.  Of  course,  the  word- 
ing may  be  whatever  is  desired. 

Two  forms  of  collection  ticklers,  Nos.  30  and  38,  are  given  in  ad- 
dition to  those  appearing  elsewhere. 


202  PRACTICAL   BANKING. 


CHAPTER    XVI. 
CORRESrONDENCB. 

Nearly  all  the  correspondence  of  banks  is  on  paper  prepared  for 
that  purpose.  A  great  variety  in  form,  size  and  color  is  used,  and  the 
printer  is  constantly  exercising  his  art  to  add  new  varieties.  It  need 
hardly  he  said  that  a  good  quality  of  paper  ought  to  be  used,  but  this 
In  some  parts  of  the  country  cannot  always  be  easily  procured.  Nor 
are  printing  houses  equipped  with  good  type  and  presses  and  masters 
of  their  art  to  be  found  everywhere.  But  if  a  banli  is  located  in  a 
small  place,  where  good  paper  cannot  be  procured  and  tastefully 
printed,  it  had  better  talce  the  trouble  to  send  to  a  banlj  printing  house, 
even  at  a  considerable  distance,  for  its  stationery  and  obtain  a  supply 
befitting  the  business  than  to  use  an  inferior  kind.  Indeed,  the  farther 
a  banli  may  be  from  a  good  printing  house  Avill  its  use  of  tastefully 
prepared  stationery  betoken  its  character.  A  bank  on  tli3  frontier 
using  stationery  of  the  most  modern  approved  kind  furnishes  sure 
evidence  that  the  manager  has  a  due  appreciation  of  the  material 
forms  pertaining  to  his  business.  When  organizing,  he  can  easily 
apply  to  some  house  making  a  specialty  of  furnishing  bank  supplies 
for  samples  of  paper,  letter  heads,  etc.,  what  styles  and  sizes  are  in 
most  general  use,  and  thus  start  well  equipped,  so  far  as  materials  go, 
for  making  a  good  impression  on  his  correspondents. 

Of  course,  the  form  of  his  letters  is  still  more  important.  And  it  is 
to  be  regretted  that  so  much  imperfection  is  still  seen  in  bank  cor- 
respondence. Many  a  man  has  shown  a  marvelous  aptitude  for  busi- 
ness who  could  not  write  his  name,  but  his  ability  to  write  well  would 
not  have  diminished  aught  from  his  reputation.  "We  cannot  help  be- 
lieving that  many  a  bank  official  does  not  know  how  poorly  he  writes; 
and  lacks  a  due  appreciation  of  the  importance  of  a  clear,  concise  busi- 
ness style,  and  of  the  impression  which  a  well  written  letter  makes 
on  another  who  has  a  thorough  knowledge  and  appreciation  of  good 
business  writing.  A  well  written  letter  is  a  mark  of  intelligence,  and 
though  a  man  may  express  his  ideas  in  writing  in  a  very  infelicitous 
manner  and  yet  possess  every  other  quality  of  a  good  banker,  his 
lack  in  this  respect  often  tells  against  him.  I^nless  he  is  known  per- 
sonally, others  judge  of  him  from  liis  correspondence  addressed  to 
them;  and  a  different  impression  is  i>ntnrally  made  by.  a  letter  badly 
written  than  by  one  revealing  an  intelligent  writer. 


CORRESPONDENCE.  203 

Brevity  is  often  desirable,  but  iu  bank  correspondence  it  is  some- 
times carried  too  far,  especially  by  those  who  most  dislike  to  write. 
Any  writing  is  faulty  that  is  so  condensed  or  abbreviated  as  to  be  ob- 
scure. Conciseness  is  a  great  merit,  but  clearness  of  expression  is  of 
the  highest  importance.  A  letter  should  always  be  read  over  by  the 
writer  who  should  assure  himself  that  the  person  to  whom  it  is  ad- 
dressed will  understand  its  contents. 

It  need  hardly  be  added  that  all  letters  should  be  copied  and  in- 
dexed in  such  a 'way  that  they  can  be  readily  found.  The  best  forms 
of  books  for  preserving  copies  and  modes  of  indexing  depends  on  the 
amount  of  correspondence  carried  on  by  a  bank.  One  located  in  a 
large  city  and  making  collections  in  every  part  of  the  Union,  sending 
out  several  hundred  letters  a  day  evidently  needs  a  system  quite 
different  from  that  of  a  bank  sending  but  a  few  letters  daily.  The 
reasons  for  copying  telegrams  are  quite  as  obvious  as  those  for  pre- 
serving any  other  correspondence. 

In  using  the  mails,  What  shall  be  said?  It  may  be  that  letters 
should  be  registered  more  generally  than  they  are,  as  their  safety 
is  enhanced  by  registering  them.  This  will  be  evident  from  a  de- 
scription of  the  system.  The  letter  to  be  thus  sent  is  put  in  the  mail 
pouch  and  is  recorded,  while  two  witnesses,  who  are  postal  clerks, 
make  a  proper  record  that  it  has  been  put  there.  The  locks  on  these 
pouches  are  of  a  more  complex  type  than  those  on  ordinary  mail  bags. 
The  bag  itself  is  sent  in  the  same  manner  as  any  other.  A  receipt  for 
every  registered  letter  is  sent  by  the  postmaster  at  its  place  of  desti- 
nation to  the  sending  postmaster.  Every  receiver  of  a  registered  letter 
signs  a  receipt  therefor  which  is  returned  to  the  sender.  The  postoffice 
department  assumes  no  special  responsibility  for  the  safe  carriage  of 
registered  letters.  Nevertheless,  this  mode  of  sending  is  deemed  so 
safe  that  the  banks  are  making  much  use  of  it  for  sending  money.  It 
is  insured  and  then  entrusted  to  the  registered  mail  system  for  safe 
deliver}'.  Formerly,  it  was  sent  by  express,  and  the  use  of  this  new 
mode  has  occasioned  no  little  criticism.  It  is  contended  that  the  mode 
is  too  risky.  But  those  who  use  it  think  otherwise  and  are  likely  to 
continue  to  do  so,  or  until  express  companies  greatly  reduce  their 
charges.* 

Many  letters  are  partly  printed  now-a-days  to  save  time  in  their 
preparation.  No  little  ingenuity  has  been  shown  in  preparing  blanks 
relating  to  many  matters.  One  of  these,  intended  for  busy  cashiers 
who  do  everything  and  have  but  little  time  to  write,  is  an  answer  to 
correspondents  concerning  their  collections.  The  form  is  herewith 
given: 


♦See  articles  in  New  York  Evening  I'ost  October,  1897,  and  by 
Charles  R.  Hannan  and  F.  H.  Stark,  in  American  Banker,  November 
3.  1897,  page  2129. 


204  PRACTICAL  BANKING. 


First  National  Bank, 


Kane,  Pa.,  September  1,  1899. 
SIGHT  DRAFT  on   SMITE  BROS,  returned 
herewith.    Reasons  for  refusal  checked  below  (X) 

Our  charges cents,  please  remit. 

JOHK  JOMES,  Cashier. 

Payment  refused,  no  reason  given.      Claims  credit  for  goods  returned. 

Acceptance  "  "         "  "  Wants  extension  of  time. 

Notice  given,  but  no  response.  Account  not  due. 

Failed  Never  accepts  drafts. 

Closed  up.  Cannot  pay  at  present. 

Not  in  town.  Does  not  owe  this. 

Parties  cannot  be  found.  Has  paid  bill. 

Refuses  to  pay  exchange.  Should  be  less  freight. 

Amount  not  correct.  Draft  not  according  to  agreement. 

Goods  not  received.  Will  send  check. 

Goods  not  satisfactory.  X  Party  will  write. 

Goods  returned.  Parties  have  written. 

One  word  more  concerning  acknowledgments.  With  the  growing 
tendency  to  abridge  the  ways  of  doing  l)usiuess,  the  practice  is  de- 
clining of  making  acknowledgments,  banks  acting  on  th3  presump- 
tion that  letters  and  remittances  have  been  received  that  were  ex- 
pected in  due  course  of  business.  Are  not  banks  going  too  far  in  this 
direction?  Purely  with  the  printed  forms  now  in  use,  or  that  may 
be  easily  prepared,  and  with  the  existing  cheap  rates  of  postage,  banks 
can  afford  to  acknowledge  everything  received  that  is  needful  to  com 
plete  the  transaction. 


BANK   RRSERVES.  206 


(CHAPTER    XVII. 

THE     KEEPING     OF     THE     LAWFUL     MONEY     RESERVE     BY 
NATIONAL    BANKS. 

The  national  l)anks  are  required  to  keep  always  on  hand,  in  law- 
ful money,  a  sum  equal  to  a  prescribed  portion  of  their  deposits.  The 
banks  in  the  central  reserve  cities,  New  York,  Chicago,  and  St.  Louis, 
are  required  to  retain  twenty-five  per  cent,  of  their  deposits;  the  banks 
in  the  other  reserve  cities,  niimberinj^  twenty-eight,  Albany,  Baltimore, 
Boston,  Brooklyn,  Cincinnati,  Cleveland,  Columbus,  Detroit,  Denver, 
Des  Moines,  Houston,  Indianapolis,  Lincoln,  Kansas  City,  Louisville, 
Los  Angeles.  Milwaukee,  Minneapolis,  New  Orleans,  St.  Paul,  Wash- 
ington, Omaha,  Philadelphia,  Pittsburg,  Portland,  Savannah,  San  Fran- 
cisco, St.  Joseph,  are  also  required  to  keep  twenty-five  per  cent.,  but 
one-half  of  this  amount  can  be  kept  with  a  bank  or  banks  in  the  central 
reserve  cities.  The  banks  in  all  other  places  must  keep  a  reserve  of 
fifteen  per  cent.,  two-fifths  at  home,  and  the  other  three-fifths,  if  they 
desire,  may  be  kept  with  a  bank  or  l)anks  in  any  of  the  nineteen  reserve 
and  central  reserve  cities.  In  thus  acting  as  reserve  keepers  the  banks 
are  usually  termed  "reserve  agents." 

What  is  included  in  the  "lawful  money"  that  must  be  kept  as  a  re- 
serve? Briefly,  United  States  gold  coin,  standard  silver  dollars,  frac- 
tional silver  coin,  certificates  for  gold  coin  deposited  with  the  United 
States  Treasurer,  certificates  for  silver  dollars  United  States  legal - 
tender  notes,  certificates  for  legal-tenders  deposited  with  the  United 
States  Treasurer,  and  gold  Clearing-house  certificates. 

The  next  inquiry  relates  to  the  deposits  against  which  a  reserve 
must  be  held.  These  are  (1)  individual  deposits;  (2)  United  States  de- 
posits, which  consist  chiefly  of  internal  revenue  collections  deposited 
by  the  internal  revenue  ofiicers;  (3)  deposits  of  United  States  dis- 
bursing oflicers,  consisting  largely  of  funds  deposited  by  paymasters 
of  the  army  and  navy;  (4)  any  declared  but  unpaid  dividends  due  to 
shareholders:  (5)  and  lastly  the  balances  due  to  and  from  banks  and 
bankers. 

There  is  one  peculiarity  in  determining  these  balances.  If  the  ag- 
gregate amount  due  to  other  banks,  whether  state  or  national  and 
bankers,  is  greater  than  the  amount  due  from  them,  a  reserve  must  be 
held  against  the  balance  as  in  the  case  of  other  deposits,  but  if  the  bal- 
ance due  from  them  is  equal  to  or  greater  than  the  amount  due  to  them, 
then  the  item  is  excluded  from  the  calcidation  and  tlie  amount  of  re- 
serve must  be  determined  as  though  there  were  no  balances  whatever 
due  to  or  from  any  bank  or  banker. 


206  PRACTICAL   BANKING. 

Against  the  deposits  held  by  a  banic  various  items  or  resources 
may  be  offset  before  determining  the  final  amount  against  which  a 
reserve  must  be  held.  These  items  are  (1)  exchanges  that  are  to  be 
paid  through  the  Clearing-house;  in  other  words,  checks  on  other  banks 
in  the  same  place  which  are  members  of  the  Clearing-house;  (2)  checks 
on  other  banlvs  in  tlie  same  place  which  do  not  belong  to  tlie  Clearing- 
house; (3)  bills  of  other  national  banks,  but  not  those  of  its  own  issue; 
and  (4)  lastly  after  the  reserve  required  is  ascertained  there  may  be 
a  reduction  of  the  Ave  per  cent,  redemption  fund  held  by  the  United 
States  Treasurer  to  redeem  its  circulation,  and  consisting  of  the  notes 
of  the  government. 

Having  now  ascertained  the  different  items  included  in  the  term 
deposits  and  the  deductions  that  may  l)e  made,  it  is  an  easy  process 
for  a  bank  in  a  central  reserve  city  to  determine  the  amount  against 
which  it  must  keep  a  reserve  of  twenty-five  per  cent. 

To  illustrate  more  clearly  the  mode  of  computing  the  reserve  of  a 
bank  the  following  example  is  given: 

LIABILITIES.* 

Due  to  National  banks $205,866 

Due  to  State  banks  and  bankers 25,559 

$231,425 
LESS. 

Due   from  other   National   banks §125,335 

Due  from  State  banks  and  bankers 100,000 

225,335 

$6,090 

Dividends  unpaid   3,867 

Individual  deposits  2,857.628 

United  States  deposits   705,000 

Deposits  of  the  U.  S.  disbursing  officer 

Gross  amount   $3,573,585 

DEDUCTIONS  ALLOWED. 

Exchanges  for  clearing-house  $107,950 

Checks  on  other  banks  in  the  same  place 513 

National  bank  notes   17,340 

$125,803 

$3,446,788 

Twenty-five  per  cent,  of  this  total  amount  is  the 

entire  reserve  required,  which  is $861,695 

Deduct  5  per  cent,  redemption  fund  with  the  U.  S. 

Treasurer   2,250 

Net  reserve  to  be  held $859,448 

*This  is    taken   from  George    M.   Coffin's  excellent  Hand-Book  tor 
National  Bank  Officers,  p.  11. 


BANK   RESERVES.  207 

Some  additional  figuring  is  needful  to  determine  tlie  amount  of 
reserve  that  must  be  held  by  a  reserve  bank  which  is  not  iu  a  central 
reserve  city  unless  it  keeps  its  entire  reserve  at  home.  Of  course,  any 
bank  can  do  this;  but  generally  the  banks  not  located  in  the  central 
reserve  cities  keep  that  portion  of  the  reserve  permitted  by  law  with 
other  banks,  and  when  this  is  done  then  some  other  questions  enter 
into  the  calculation. 

This  class  of  reserve  banks,  it  will  be  remembered,  must  keep  one- 
half  of  its  reserve,  12  1-2  per  cent.,  at  home;  the  other  half  may  be  kept 
iu  banks  in  the  central  reserve  cities.  It  often  happens  that  a  reserve 
bank  has  a  reciprocal  account  with  a  central  reserve  bank  instead  of 
simply  depositing  a  portion  of  its  reserve  with  it,  and  there  are  bal- 
ances due  on  both  sides  growing  out  of  collections  or  other  business 
done  by  each  for  the  other.  How  shall  these  balances  be  treated?  If 
the  balance  due  from  the  central  reserve  bank  on  this  account  exceeds 
the  balance  due  to  it,  the  excess  or  final  balance  is  available  for  the 
12  1-2  per  cent,  reserve  that  may  be  kept  there.  But  if  the  final  bal- 
ance is  due  to  the  central  reserve  bank,  then  the  amount  of  such  bal- 
ance is  to  be  treated  as  a  deposit  "due  to  other  national  banks," 
against  which  a  reserve  must  be  held  as  previously  explained.  Though 
the  balance  due  from  a  central  reserve  bank  to  any  other  bank  may 
•be  treated  as  belonging  to  the  reserve  fund  that  may  be  kept  with 
other  banks,  it  can  never  be  used  to  make  up  a  deficiency  in  that 
portion  of  its  reserve,  12  1-2  per  cent.,  or  one-eighth  of  its  deposits 
which  it  must  always  keep  at  home.  This  rule  is  inflexible.  But  the 
excess  may  be  used  to  reduce  the  liability  on  deposits  having  the  effect, 
to  reduce  the  balance  due  to  banks  or  bankers,  even  perhaps  to  exclude 
altogether  that  item  from  the  calculation.  To  repeat,  when  the  ad- 
dition of  the  excess  with  the  reserve  banks  added  to  the  amount  due 
from  other  banks  and  bankers  equals  or  exceeds  the  amount  due  to 
them,  the  item  is  then  dropped  from  the  computation  of  the  reserve; 
but  when  the  addition  of  the  excess  to  the  amount  due  from  other 
banks  and  bankers  is  less  than  the  amount  due  to  others,  then  the 
effect  of  the  excess  is  to  reduce  the  amount  against  which  a  reserve 
must  be  held,  as  previously  explained. 

When  the  excess  is  used  to  reduce  the  amount  against  which  a  re- 
serve must  be  held,  the  calculation  becomes  somewhat  intricate  if  a 
bank  is  desirous  of  reducing  its  deposit  to  the  smallest  possible  amount 
permitted  by  law.  Thus,  suppose  after  deducting  from  the  deposits, 
the  various  items  above  mentioned  the  balance  is  .$1,203,2.^0,  against 
which  a  reserve  of  twentj'-five  per  cent,  must  be  held,  one-half  of 
which,  12^4  per  cent,  or  one-eighth  of  its  entire  deposits,  must  be  at 
home  and  the  balance  with  reserve  agents.  The  entire  amount  of  the 
reserve  would  be  $315,817— the  amount  required  to  be  at  home  $157,908, 
and  the  amount  that  may  be  kept  with  reserve  agents  $157,008. 

Suppose   the   bank   has   with   a   central  reserve   bank   or   agents, 


208  PRACTICAL   BANKING. 

$210,072,  or  an  excess  of  .$r)2,7r»G  above  the  legal  amount  that  might 
be  thus  kept.  This  excess  may  now  be  used  to  reduce  the  balance 
against  which  a  reserve  must  be  kept,  having  the  effect  of  reducing 
the  amount  of  the  reserve.  Thus  by  deducting  ?52,7G0  from  the  first 
balance  of  $1,203,350,  the  second  balance  would  be  $1,210,484.  But 
the  total  reserve  required  to  be  kept  for  this  would  be  $302,021,  or 
$151,311,  at  home  and  as  much  with  the  reserve  bank,  instead  of  the 
$157,900  first  ascertained,— a  difference  of  $0,595.  But  it  is  evident 
that  the  second  balance  of  $1,210,484  may  still  further  be  reduced  by 
deducting  the  above  excess  of  $0,595,  not  required  by  law  to  be  kept 
with  the  reserve  bank  to  form  its  12  1-2  per  cent.  fund.  Deducting 
this,  the  thinl  balance  would  be  $1,203,889,  and  the  total  reserve  would 
be  $300,972,  or  one-half  at  either  place  $150,480.  This,  however,  is  an 
excess  of  $825  that  need  be  kept  with  the  reserve  bank.  Deducting 
this,  the  fourth  balance  would  be  $1,203,004.  and  the  total  reserve  re- 
quired $300,700,  or  a  reserve  at  either  place  of  $150,383.  This  is  still 
an  excess  of  $105  that  need  be  kept  with  the  reserve  bank.  Striking 
a  fifth  balance  it  would  be  $1,202,959,  and  the  total  reserve  $300,739,  or 
a  reserve  at  either  place  of  $150,309.  This  though  is  an  excess  of  $14. 
Let  us  make  one  more  deduction.  The  sixth  balance  therefore  would 
be  $14  less  or  $1,202,945.  The  total  reserve  required  for  this  would 
be  $300,730,  and  the  reserve  at  either  place  $150,308.  There  would 
then  be  left  an  excess  of  a  dollar,— an  excess  too  small  to  effect  any 
farther  reduction. 

Instead  of  resorting  to  this  long  method  to  ascertain  the  true 
excess,  a  shorter  one  has  been  discovered  and  is  generally  used.  To 
the  apparent  excess  add  one-seventh  of  that  amount  and  strike  a  new 
balance  which  will  be  the  correct  amount  against  which  the  reserve 
must  be  licpt. 

Another  method  may  be  used  for  ascertaining  the  true  excess. 
Divide  the  apparent  excess  by  eight  and  also  each  successive  result 
in  the  same  manner  until  there  is  no  excess  large  enough  to  divide,  and 
combine  the  results. 

Thus   the   above   apparent    excess    was $52,706 

The  next  excess  would  be 0,595 

The  next  excess  would  be 824 

The  next  excess  would  be 103 

The  next  excess  would  be 13 

The  next  excess  would  be 2 

True   excess    $00,304 

In  ascertaining  the  amount  of  deposits  of  a  bank  required  to  keep 
a  reserve  of  fifteen  per  cent,  the  method  differs  from  that  of  a  reserve 
bank  in  one  particular  only.  The  exact  excess  in  the  possession  of 
the  reserve  agent  is  ascertained  by  adding  six  ninety-firsts  of  the 
apparent  reserve  to  that  amount. 


THE   BOOKKEEPER.  209 


CHAPTER  XVIII. 
THE    BOOKKEEPER. 

Mathematical  accuracy  is  one  of  the  prime  virtues  of  an  accountant. 
It  is  nowhere  more  important  than  in  bank  booklceeping.  While  the 
affairs  of  a  bank  are  running  along  smoothly  its  customers  are  given 
little  opportunity  to  judge  of  the  capability  and  thoroughness  of  those 
who  manipulate  the  books  of  account.  But  when  the  institution  comes 
to  gripf,  and  the  creditors  are  waiting  in  painful  suspense  to  learn  the 
fate  of  their  deposits,  the  opportunities  for  determiuing  how  well  the 
books  have  been  iiandled  are  excellent.  It  is  at  such  times  that  the 
public  an'  taught  to  appreciate  the  value  of  accuracy,  system  and 
promptness.  When  it  requires  days,  and,  as  is  sometimes  the  case, 
weeks,  for  the  bookkeepers  to  make  up  a  statement  of  the  condition 
of  a  suspended  l)ank,  the  Inference  may  be  fairly  taken  that  something 
is  radically  wrong.  It  may  be  the  imperfections  of  the  system  in  vogue, 
or  possibly  a  weakness  in  the  brain  of  the  bookkeeper. 

A  good  theory  to  follow  in  bank  bookkeeping  is  one  which  each  day 
presumes  that  the  bank  is  to  suspend  payment  before  time  for  the 
doors  to  open  the  next  morning.  And  not  only  so,  but  also  one  which 
presumes  that  the  directors  or  proprietors  are  to  require  a  complete 
financial  exhibit  of  the  banlc's  affairs  within  twenty-four  hours  from 
the  time  the  suspension  is  announced.  There  can  be  no  good  reason 
why  a  complete  statement  should  not  be  pi'esented  within  a  few  hours 
at  any  time,  if  no  crookedness  has  been  practiced.  It  is  not  only 
important  that  the  work  of  each  day  should  be  finished  before  the 
doors  open  on  the  morning  of  the  day  following,  but  that  the  work 
should  be  so  performed  as  to  enable  the  bookkeepers  to  make  up  a 
full  exhibit  without  delay.  Even  in  cases  of  defalcation  and  crooked- 
ness on  tiie  part  of  any  one  individual  where  several  ofticers  and  clerks 
are  employed,  there  would  be  no  reasonable  excuse  for  requiring  days, 
and  often  weeks,  in  preparing  statements  for  the  public.  Simplicity 
in  method  and  an  efficient  clerical  force  will  obviate  the  present  pre 
vailing  difliculties. 

It  is  not  good  economy  for  the  manager  of  a  bank  to  expect  one 
clerk  or  l)ookkeeper  to  perform  the  lal)or  of  two.  There  can  be  as 
much  of  a  mistake  in  employing  not  enough  as  too  many.  But,  before 
considering  the  number  to  be  employed,  the  fitness  of  each  for  the 
position  should  receive  attention.  Above  all  things,  know  that  each 
11 


210  PRACTICAL   BANKmO. 

and  every  person  doing  clerical  work  in  a  baulc  is  tliorouglily  qualified. 
Then  see  that  the  force  is  sufficient  to  have  the  worlv  kept  closely  up, 
and  require  in  all  cases  that  no  part  is  neglected.  We  would  say  to 
the  bookkeeper  of  a  bank:  Demand  that  you  be  allowed  a  sufficient 
force  to  do  the  work  punctually  and  in  the  best  manner.  If  your 
request  is  refused  it  is  better  to  resign  than  take  chances  in  doing  your 
duty  when  you  knoM-  that  important  parts  must  be  neglected.  Banks 
show,  as  a  rule,  more  wisdom  in  this  respect  than  commercial  houses. 
Yet  there  are  but  few  banks  in  Avhich  an  improvement  might  not  be 
made  by  an  addition  to  the  regular  force.  This  improvement  would 
redound  to  the  advantage  of  stockholders  as  well  as  the  bank's  cus- 
tomers. 

The  method  of  bookkeeping  practiced  in  a  bank  may  have  much 
to  do  witli  the  force  necessary  for  performing  the  work  properly.  We 
cannot  undertake  in  this  treatise  to  go  into  the  details  of  all  the 
different  systems  in  vogue.  It  is  our  aim,  however,  to  give  such  expla- 
nations of  th3  methods  in  most  general  use  as  will  enable  the  reader  to 
understand  tlie  principles  and  be  able  to  choose  a  plan  best  adapted  to 
his  special  needs.  Important  changes  and  improvements  in  bank 
as  well  as  commercial  l)ookkeeping  have  taken  place  within  the  past 
ten  or  fifteen  years.  A  few  years  ago  banks  received  a  fair  revenue 
from  the  sale  of  exchange.  Remittances  from  one  part  of  the  country 
to  another  are  still  made  almost  entirely  by  means  of  bank  drafts,  but 
since  the  establishment  of  a  currency  which  is  at  par  throughout  the 
United  States,  the  rate  of  exchange  cannot  much  exceed  the  cost  of 
transmitting  money  by  express,  and  the  business  of  dealing  in  exchange 
by  banks  is  no  longer  considered  an  important  item  of  revenue.  The 
change  has  had  its  influence  upon  bank  bookkeeping. 

The  tendency  has  been,  in  bank  bookkeeping,  to  abridge  the  work. 
There  is  still  room  for  improvement  in  many  institutions  in  this  direc 
tion.  It  is  a  good  idea,  in  all  places  where  possible,  to  avoid  rewriting 
items  and  amounts.    We  will  first  turn  our  attention  to 

ACCOUNTS  OF  DEPOSITORS. 

The  depositors'  accounts,  in  an  institution  doing  a  general  banking 
business,  absorb  much  the  greatest  attention  of  the  bookkeepers.  Eter- 
nal vigilance  is  a  prime  virtue  in  their  manipulation.  Considering  their 
numbers,  the  infinite  multiplicity  of  items  they  represent,  and  the  vast 
sums  received  and  disbursed  upon  tliem,  the  small  number  of  mistakes 
made  in  their  keeping  is  worthy  of  consideration.  It  demonstrates  the 
possibility  of  wonderful  accuracy.  The  errors,  at  least  those  dis- 
covered, will  not  average  one  in  a  thousand  transactions. 

There  is.  perhaps,  an  unusual  degree  of  accuracy  exhibited  in  the 
work  upon  this  class  of  accounts.  The  reason  is  obvious.  An  error, 
no  matter  how  slight,  is  jilmost  certain  to  be  discovered  by  the  depos- 
itor.   Wlicthci-  or  not   the  error  is  reported  to  tlie  bank  officials,  such 


THE  BOOKKEEPER. 


211 


a  discovery  is  painful  to  tlie  bookkeeper.  It  forms  a  basis  for  sus- 
pt'ctiag  other  l)lunilers;  it  may,  too.  involve  serious  ditiiculty.  These 
are  some  of  the  penalties  constantly  in  view,  and  they,  no  doubt,  exert 
an  inlluence. 

In  all  branches  of  an  accountant's  work  the  probability  that  an 
error,  if  made,  will  be  discovered  by  some  one  other  than  himself  will 
invariably  cause  some  weight  upon  vigilance  and  thoughtfulness. 
Where  an  error,  if  made,  will  be  detected  by  its  author,  as  is  the  case 
in  some  parts  of  the  bookkeeper's  work,  and  may  be  corrected  before 
reaching  others'  eyes,  a  feeling  of  indifference  is  more  apt  to  manifest 
itself.  This  suggests  the  importance  of  rotating  the  force  employed 
in  large  banks,  so  that  the  Avork  of  each  one  will  be  examined  by  some 
one  of  the  other  employes.  In  England  it  is  almost  the  universal 
practice  to  have  a  professional  accountant  go  over,  at  stated  periods, 
all  the  work  of  a  bank.  The  plan  is  not  much  followed  in  this  country, 
but  it  is  being  discussed  in  many  quarters.  Experience  has  shown  that 
the  examinations  made  by  government  officials  are  not  a  sufficient 
guarantee  to  stockholders  and  depositors  that  the  published  exhibits 
are  faithful  showings  of  the  banks'  condition. 
One  cause  that  has  a  tend- 

BANK  OF  WRAY. 


ency  to  bring  about  a  high 
standard  of  accuracy  in  the 
treatment  of  depositors'  ac- 
counts is  that  of  special  study 
in  this  direction.  Much  atten- 
tion and  skill  have  been  direct- 
ed to  devising  plans  for  keeping 
this  class  of  accounts.  We 
will  presently  illustrate  some 
of    these  Inventions.     But  let    Currency^ 

us  first  consider  the  elementary    Silver. 

functions  of  a  depositor's  ac-     „  .  , 
count. 


DEPOSITED  BY 


Wray,  Colo 190 

¥L E AS  E  L  r^f  E  AC H  CHECK3EPARATiie^ 


CHECKS   AS    FOLLOWS: 


THE  DEPOSIT  SLIP. 

In  the  12th  chapter  of  this 
work  are  described  the  duties 
of  the  receiving  teller.  Depos- 
itors come  oftener  in  contact 
with  the  receiving  teller  than 
any  other  employe.  It  is  this 
teller  who  receives  the  depos- 
its. On  page  212  appears  a  brief 
description  of  the  depositor's 
pass-book.  When  making  a 
deposit  the  depositor  fills  out  a 
printed  blank,  upon  which  he 


Total,  $ 
's"El  THAT  All  GHEGKSANa'^^'^'FJS^L  C ; 


il 


213 


PRACTICAL  BANKING. 


writes  his  name  and  a  description  of  items  making  up  his  deposit,  as  in 
form  here  shown. 

This  "Deposit  Slip,"  with  the  funds  to  be  deposited  and  the  depositor's 
pass-book,  are  handed  to  the  receiving  teller.  The  bills  are  counted  and 
the  items  examined  and  checked  off  by  the  teller,  who  charges  the  bank 
in  the  depositor's  pass-book  with  the  full  amount  of  the  deposit,  and  files 
the  slip  ready  for  the  bookkeeper.  These  slips  are  the  bank's  vouchers 
for  the  transaction. 

THE  DEPOSITOR'S    PASS-BOOK. 

The  depositor's  pass-book  is  a  small  account  book.  Upon  the  left- 
hand  page,  or  debit  side,  the  deposits  are  entered;  the  right-hand,  or 
credit  pages  are  used  to  enter  up  the  checks  of  the  depositor.  It  is 
the  bookkeepers'  duty  to  write  up  and  bahiuce  the  depositor's  pass-book 
when  left  at  the  bank  for  that  purposi".  The  depositor's  account  in  the 
bank's  ledger  furnishes  the  data  for  writing  up  the  pass-book.  In 
the  ledger  account,  however,  the  deposits  which,  in  the  pass-book, 
appear  on  the  debit  side  are  entered  on  the  credit  side.  The  checks 
are  entered  on  the  debit  side  of  the  ledger  account.  The  reason  of  this 
transposition  is.  that  the  pass-book  represents  the  depositor's  account 
with  tlie  bank  while  the  l)ank's  ledger  sliows  the  bank's  accoimt  with 
the  depositor. 


The  Arctic  National  Bank  in  Account 
Dr. 


with  Richard  Whittington. 
Cr. 


Jan.  2. 


Jan.S... 


B.  K 

J.c. 


10,000 

400 

2,000 


12,000 


371  10 


1,324  05 
208  40 


13  Checks 
returned. 


Balance. 


17S  20 

100 

960  50 

46  75 

2,100 

10  SO 

137  10 

305  10 

5,420  50 

1.240  80 

371  10 

12,400  00 

The  letters  opposite  the  dates  on  the  debit  pag-e  are  the  initials  of  the  teller  who 
received  the  deposit.  On  the  credit  page  are  several  columns  in  which  the  amounts 
of  the  checks  or  vouchers  are  entered.  These  checks  are  returned  with  the  pass- 
book to  the  depositor.  The  balnnce,  after  having  been  added  to  the  footings  of  the 
checks,  is  carried  to  the  debit  of  the  account  preparatory  to  continuing  the  transactions. 


DEPOSITORS'    LEDGERS. 

The  postings  to  tlie  depositors'  accounts  are  sometimes  made  direct 
from  the  deposit  slijjs  on  the  one  side,  and  from  the  checks  on  the 
other.  The  checks  and  slips,  when  thus  posted,  are  first  entered 
in  a  Journal  or  register  for  tlie  purpose  of  proving  the  cash  and 
accounting  willi  tlie  Idlers.     This  joui'iial  or  register  forms  a  part  of 


THE  BOOKKEEPER. 


213 


the  general  books  of  the  bank.  The  ledgers  containing  the  depositors' 
accounts  are  auxiliary  to  the  general  books.  We  mean  by  this  that  a 
statement  of  tlie  bank's  condition  is  made  up  independently  of  the 
depositor's  ledgers.  One  account  in  the  general  ledger  serves  to  show 
the  liability  of  the  bank  to  its  depositors.  In  some  banks  the  postings 
to  the  depositors'  accounts  are  made  from  other  books,  usually  called 
"journals."  In  some  systems  two  journals  are  used,  and  in  others  only 
one.  We  give,  in  this  connection,  some  illustrations  of  these  jovirnals. 
Though  still  used  to  some  extent,  the  forms  shown  under  the  title  of 
"debit  journal"  and  "credit  journal"  have  been  mostly  superseded  by 
more  modern  devices.  The  form  under  the  title  of  "deposit  journal" 
is  used  by  many  country  banks.  It  is  simple,  and  well  serves  the  pur- 
pose for  which  it  is  intended. 

DEPOSITORS'   LEDGER  WITH   BALANCE  COLUMN. 
Richard  Whittington. 


Vale.         Folio. 

Hems. 

Debit. 

Credit. 

Balance. 

Jan  2.... 
2.'.'.'. 

27 
27 

29 

34 

462  35 

4.613  60 
6.982  95 

10.000 
400 

100,  40  7S,  10  SO,  30510 

Dep 

1'40  80,  1 75  20,  960  SO 

9.537  65 

2100,  137  10 

5.324  05 

4.... 

5420  50,  1324  05 

20S  40 

*i.62S  90 

The  first  column  contains  the  debits  or  checks,  the  second  column  the  credits  or 
deposits,  and  the  third  column  ihe  balances.  The  balances  are  cairied  out  every  day 
after  the  deposits  and  checks  have  been  entered  up. 

FORM  OF  RULING  DEPOSITORS'  LEDGER  WITH  BALANCE 

COLUMNS. 


FORM    47 

1- 



_ 

_ 



_ 

_  -. 







_ 

_ 

_ 

_ 

_ 



_ 

_ 



_ 

= 

HATE 

Folio 

ITEM 

Dr.  Amount 

Or.  Amoomi 

Balance 

DATE 

Folio 

ITEM 

Dr.  Amount 

Cb.  Amoumt 

Baumce 

I 

1 

- 

■ 

— 

' 

1 

■  i  .       1 

1       i>   1 

1  ' 

In  the  large  city  banks,  where  the  depositors  are  so  numerous  as  to, 
require  a  classification  of  the  accounts,  several  books  are  kept  for 
summarizing  the   checks   and   deposits.      The  depositors'   accounts   are 


*This  balance  is  printed  here  in  italics  to  represent  an  overdraft. 
In  practice  it  would  be  written  in  red  ink. 


214 


PRACTICAL  BANKING. 


grouped  thus:  Names  commencing-  with  A  to  D,  E  to  K,  L  to  R.  and 
S  to  Z.  The  checlvs  and  deposit  slips  are  assorted  so  as  to  be  entered  up 
under  the  several  classes  or  groups  in  separate  journals  or  registers. 
The  work  of  writing  up  must  be  commenced  in  ample  time  for  entering 
the  last  check  paid  and  the  last  checlv  deposited  almost  immediately 

DEPOSITORS'  LEDGER  WITH  DOUBLE  BALANCE  COLUMNS. 

Richard  Whittington. 


1628  90 


462  35 
4.613  60 
6.952  95 


305  10,  10  50,  46  75,  100 

21000,  137  10,  960  50,  175  20,  1240 
208  40,  1324  05.  5420  50 


10.000 
400 


9.537  65 
5  324  05 


This  represents  a  Depositors'  Ledger  with  two  debit  and  two  credit  columns;  one 
column  for  item  checks  and  one  column  for  dates.  The  first  column  on  the  left 
shows  the  debits'  balance  or  overdraft;  the  second  column  the  totals  of  checks;  the  third, 
itemized  checks  and  other  explanatoiy  remarks;  the  fourth,  the  dates;  fifth,  credits  or 
deposits;   and  sixth,  credit  balances. 


FORM  OF  RULING  DEPOSITORS'  LEDGER  WITH  DOUBLE 
BALANCE  COLUMN. 


FORM    463. 


_ — , _ , _ 

= 

— 

= 

= 

= 

= 

Datk 

ITEMS 

Bebit 

Credit 

De.Biliscb 

Cr.  Balance 

- 

after  the  tellers  close  their  windows.  In  the  work  of  wnting  up  there 
Is  precaution  taken  to  leave  sufficiv^nt  space  after  the  name  has  been 
once  entered  to  add  subsequent  checks.  This  does  not  apply  so  much 
to  deposits,  as  cases  of  more  than  one  deposit  to  a  name  in  a  day  are 
oxceptional. 

THE  PRINCIPAL  BOOKS. 

The  number  and  character  of  the  books  of  a  bank  which  make  up  the 
general  set  varies  according  to  the  volume  of  business  transacted.  The 
routine  practiced  is  also  dependent  upon  the  extent  of  the  transactions. 
For  the  purpose  of  illustration,  we  shall  give  in  these  pages  a  description 
of  the  books  and  routine  best  adapted  to  the  needs  of  a  b;uik  of  a  moderate 
type. 

Commencing  with  the  organization  of  the  First  National  Bank, 
we  will  fi)ll()\v  till'  transactions  of  a  period  sufficient  to  embrace  a 
history  of  the  general  routine.  The  preliminaries  for  organizing  a  bank- 
ing corporation  have  been  fully  described  under  Chapter  III.  We  will 
presume,  thoroforo,  that  all  the  preliminary  arrangements  have  been 
perfected.  The  bank  is  organized  with  a  capital  of  .$2.")0.000.  This  amount 
is  paid  in  by  the  shareholders.    For  the  original  entries  of  what  has 


THE   BOOKKEEPER. 


215 


transpired,  we  look  to  the  minutes  of  the  shareholders'  meetinsrs  and 
the  book  of  stock  subscriptions  in  which  a  record  of  the  stock  certifi- 
cates and  the  owner  thereof  is  made,  as  shown  by  the  form  below: 


REglSTER  AND  REEORD  OF  KERTIFIKATES  OF  STOSK. 


KECimU  OK  IS,- 

-V-- 

iim\'.:':t,h.„ 

IKANSKEKKliD 

UWNER  or  CERTIFICATE 

I..,., 

c!^,uf. 

l'it# 

cl^l;';r. 

fill?.'. 

U. 

V. 

11. 

L, 

V. 

The  opening  entry  la  the  books  of  account  is  made  in  the  general 
journal,  a  book  with  the  ordinary  two-column  journal  rulings.  The 
account  representing  the  certificates  of  stock  is  debited,  and  the  account 
of  capital  stock  credited  for  the  amount  of  the  bank's  capital.  Before 
any  of  the  certificates  have  been  issued  to  subscribers,  they  (the  cer- 
tificates) form  the  only  resources  of  the  corporation.  They  are  the 
assets  against  the  liability  of  the  corporation  for  the  amount  of  its 
capital  stock.  As  the  stock  is  subscribed  for,  the  certificates  go  cut. 
and  the  corporation  holds  the  stockholders  individually  and  collectively 
for  the  amounts  thus  issued.  This  operation  is  recorded  by  charging 
in  the  books  to  the  account  of  "Stockholders"  the  amount  subscribed 
for,  and  crediting  the  account  of  stock  certificates.  When  the  share- 
holders pay  in  their  subscriptions,  the  general  account  of  "Cash"  is 
debited,  and  the  account  of  stockholders  credited  with  the  payment. 
Thus  far  the  records  of  these  transactions  are  the  same  in  all  joint- 
stock  companies. 

In  the  General  Ledger  the  account  of  "Stockholders"  represents 
these  several  accounts  collectively.  A  book  called  a  "Stock  Ledger"  is 
kept  for  the  purpose  of  keeping  the  accounts  of  these  persons  sepa- 
rately.   The  Stock  liCdger  is  an  auxiliary  to  the  general  set. 

The  capital  having  been  fully  paid  in,  a  purchase  is  made  of 
$220,000  in  United  States  bonds,  on  which  a  premium  is  paid  of 
$30,000.  The  bonds  are  deposited  with  the  Treasurer  of  the  United 
States  at  Washington,  and  in  return  the  bank  receives  its  national 
bank  notes  to  the  amount  of  $198,000,  of  which  $9,900  must  be  ex- 
changed for  United  States  notes,  to  form  the  five  per  cent,  redemption 
fund,  kept  with  the  United  States  Treasurer. 

The  premium  on  bonds,  the  ten  per  cent,  of  bonds  not  covered  by 
circulation,  and  the  five-per-cent.  fund  to  secure  redemption,  together 
may  be  treated  under  one  general  title,  they  forming  a  reserve  growing 
out  of  the  Ijank's  circulation.  The  title  we  have  chosen  is  "Circulation 
Reserve."  This  is  not  arbitrary.  The  account  represents  an  asset 
which,  in  the  example  usesd  here,  is  .$61,900.    The  premium  paid  in 


216 


PRACTICAL  BANKING. 


cu  the  bonds  forms  nearly  one-half  of  this  reserve.  But  so  long  as  the 
present  rate  of  interest  holds,  this  resource  is  as  substantial  as  so  much 
money  locked  up  where  it  cannot  be  used  until  tlie  bank  withdraws 
its  circulation.  Tlie  three  items  which,  combined,  make  the  reserve 
fund,  or  circulating  reserve,  could,  if  it  were  desired,  be  treated  each 
under  an  independent  title.  It  would,  however,  only  encumber  the 
books  and  serve  no  practical  purpose  in  the  end. 

The  first  three  entries  in  the  journal  could,  in  a  case  of  the  kind 
used  as  an  illustration,  be  condensed  under  one  journal  entry.  But, 
suppose,  instead  of  all  the  stock  being  subscribed  for  at  once,  only  a 
part  had  been  taken.  Then,  too,  presuming  that  the  amount  subscribed 
for  had  been  only  paid  in  part.  It  will  be  seen  that  each  of  the  entries 
given  would  have  been  necessary  for  recording  the  operations,  step  by 
step,  as  they  transpired. 

For  all  that  has  been  done  up  to  this  time,  it  was  not  necessary 
that  the  company  should  have  a  place  of  business  of  its  own.  It 
may  have  had  one,  however,  and  got  fairly  under  way  before  its  circu- 
lating notes  had  been  sent  on  from  the  Treasuy  D'  artnient.  Bat 
presuming  that  our  records  represent  the  transactions  In  the  order  of 
their  occurrence,  we  now  find  the  new  corporation  ready  to  rent  or 
buy  a  place  to  conduct  its  business,  open  its  doors  and  receive  deposits. 
liCt  us  proceed  to  examine  the  history  of  what  takes  place,  and  record 
the  various  operations  in  the  books  of  account. 


GENERAL  JOURNAL. 


-FORM  442. 
Lunar  City,  July,  189. 


stock  Certificates 

To  Capital  Stock 

Stockholders 

To  Stock  Certificates 

Cash 

To  Stockholders 

United  States  Bonds 

Circulation  Reserve,  (Premium) 

To  Cash 

Bank  Circulation 

Circulation  Reserve,  (Ten  p.  c.  fund) 

To  United  States  Bonds 

Tellers'  Circulation 

Circulation  Reserve,  (Five  p.  c.  fund) 

To  Bank  Circulation 


250,000 

250,000 

250,000 

220,000 
30,000 

198,000 
22,f00 

188,100 
9,900 


250,000 
250,000 
250,000 

250.000 

220,000 

198,000 


THE  BOOKKEEPER.  217 

FORM  OF  RULING  GENERAL  JOURNAL. 


HISTORY  OF  TRANSACTIONS. 

July  1.— Concluded  purchase  of  property  known  as  Treasury  Hall, 
for  bank  building,  paying  for  same  $27,500.     Recording  deed,  $2.50. 

1 2th.— Bill  of  carpenter  for  fitting  up  bank  building,  $563,  paid. 

13th. — Bought  furniture  and  fixtures,  for  which  bill  amounted  to 
$375. 

15th. — Paid  for  books  and  other  stationery,  including  express 
charges,  $155. 

16th.— Bought  postage  stamps,  $12.     Bill  for  printing,  paid,  $75.10. 

Correspondence  with  Arctic  Nat.  Bank  established  by  depositing 
in  current  funds,  $30,000.  Paid  expenses  of  President,  trip  to  New 
York,  $55. 

18th.— Received  following  deposits:  H.  M.  Lutz,  585.10;  Theo. 
Kitchen,  1,624.75;  G.  A.  Lewis,  1,210.40  ;  E.  P.  Graham,  482.50;  W.  H. 
Webb,  1,540.82. 

Among  deposits  were  following  checks  and  bills  : 

First  Nat.,  513.80,  75.30,  12.40,  1210.40. 

East  River,  N.  Y.,  1,105.82. 

Hanover,  N.  Y.,  269.95. 

Stebbins,  F.,  &  Co.,  Lawrence,  N.  Dak.,  71.50. 
Exchange,  Pike,  111.,  25.30. 

Discounted  paper  as  follows  : 

For  Joseph  Arnold,  H.  Coulter's  note,  60  days,  1,000.00, 

ForW.  T.  Bartlett,  his  note,  60  d.s.,  for  2,500.00;  secured  by  U.  S. 
bonds. 

For  H.  Coulter,  O.  B.  Arnold's  note,  90  ds.,  3,500.00. 

For  J.  H.  Watt,  G.  A.  Lewis's  note,  30  ds.,  2,780.00. 

For  F.  Zahn,  R.  Ladd's  note.  60  ds.,  3,400.00. 

Bought  following  bills  on  New  York,  and  sent  same  for  credit  to 
Arctic  Nat.  Bank  : 

Theo.  Kitchen's  dft.  on  Imp.  and  Tdrs.',  endorsed  by  W.  T.  Bartlett, 
7,000.00  :  premium,  7.00.  H.  C.  Rider's  dft.  on  C.  S.  Hough,  payable  at 
Nat.  Park,  4,000.00  ;  premium,  3.50. 


218 


PRACTICAL   BANKING. 


Sold  exchange  on  Arctic  Nat.  as  follows; 
H.  M.  Lutz,  2,500.00;  prem.,  3.25. 

F.  Zahn,  1,800.00;  prem.,  2  25. 

W.  H.  Webb,  250.50;  prem.,  50  cts. 

Paid  the  following  checks: 
W.  H.  Webb,  250.50,  18.25. 
Theo.  Kitchen,  270.50,  18.42,  5.10. 
19th. — Received  the  following  deposits: 

G.  A.  Lewis,  516.80;  W.  II.  Webb,  275.10;  G.  A.  Linton,  1,255.00;  H. 
M.  Lutz,  .340.10;  John  Rapsou,  1,842.70;  J.  D.  Brown,  540.15;  J.  W. 
Torroy,  178.40. 

Among  the  deposits  were  the  following  checks: 

First  Nat.,  Hartford,  Conn.,  175.80. 

Chemical,  New  York,  255.10. 

Fourth  Nat.,   New  York,   15(3.50. 

Merch.  Nat,  New  York,  127.40. 

All  of  which  were  remitted  Arctic  Nat.  for  credit. 
Paid  checks  as  follows: 

W.  H.  Webb,  75.80,  37.50,  42.00. 

G.  A.  Lewis,  13.15,  27.50,  105.85,  10.10. 

Theo.  Kitchen,  8.75,  75.80,  327.40,  8.25. 

H.  M.  Lutz,  107.10,  40.60,  3.27. 

G.  xV.  Linton,  36.40,  27.85. 

J.  U.  Brown,  8.40,  10.75,  41.85. 

Received  for  collection  the  following  bills: 

No.  1— John  Rapson,  on  Brown  Bros.,  Chicago,  246.80;  No.  2— J.  W. 
Torrey,  on  Smith  &  Wood,  New  York,  47.25;  No.  3— W.  H.  Webb,  on 
Drexel,  Morgan  &  Co.,  1,247.50;  No.  4— E.  P.  Graham,  on  Prince  & 
Whitely,  385.10;  No.  5— J.  D.  Brown,  on  .Tohn  H.  Davis  &  Co.,  470.50. 

Many  banks  have  dispensed  with  the  Offering-Book.  The  infor- 
mation given  in  Chapter  VII  explains  why  the  book  may  in  many 
cases  be  unnecessary.     (For  explanation,  S33  pag3s  227  and  223. 

OFFERING  BOOK. 


^ 

Date. 

Offered  by 

Guarantee. 

Payable  at 

Am't. 

To 
Run. 

Ac   1  De- 
cepled  chned 

Re- 
marks 

1 

July  18 

Joseph  Arnold 

H.  Coulter.... 

Our  bank 

1,000 

60  ds. 

1,000 

2 

17 

W.  T.  Bartlett 

U.P.Bds  $3,2a 

Arctic,  N.  Y  . . 

2S00 

60  ds. 

2,500 

3 

18 

H.  Coulter.... 

O.  B.  Arnold  . 

Our  bank 

3,500 

90  ds. 

3,500 

4 

16 

D.  Robb 

J.  Hurd 

do        

750 

60  ds. 

750 

5 

17 

J.  H.Wait.... 

G.  A.  Lewis  . . 

Chemical, N.Y. 

2,780 

30  ds. 

2,7S0 

6 

18 

C.  T.  Wood  . .  . 

J.  Green 

Our  Bank 

1,800 

60  ds. 

1,800 

7 

17 

P.  Young 

T. W.  Bush  . . . 

do        

500 

30  ds. 

500 

8 

18 

F.  Zahn 

R.  Ladd 

do       

3,400 

60  ds. 

3,400 

THE  BOOKKEEPER. 


219 


JOOooo 


M 

o 

t^ 

rf 

r^ 

s 


>>  ha  j^ 
£    a    a 

E  I  .2  S  a 


:  rt   II 


n    t3  2  II  a  k.  z  :f-3   ■ 
n    u  S5  bt.o  «  •-  H  «  a 

.>       CC     '— '^  t-H  OJ  fO  rJ-»^ — 


O  o' 


■9  3 


y  V 

.r,^ 


iricvj  ro  CO  r^  O  <J"j  CM  cvj  IT) 


ir,ooco 


220 


PRACTICAL  BANKING. 


[LEFT  PAGE  1 


TELLER'S 

FOPM     no.               COPYHIGKIEO   1891,   Bv    lEVEY   SBO' S  4    CO.,  INDIANAP 

Daily 

Balance 

SUNDRY  CREDITS. 

INDIVIDUAL  DEPOSITS. 

Drafts . 

Exchange 

Notes  Paid 

InUrMt.ftnd 
UiKonnt. 

1 

REOAPITULATION. 

On  hand  last  balance, 

Sundry  Credits. 

Iiidi»i(lual  Deposits, 

Drafts, 

Eicbange, 

Notes  Paid, 

Interest  and  Discount, 

Total. 

1 

RECEIVING  TELLER'S  CHECK  BOOK. 

Depositor, 

Cash. 

Dom.  I'.x . 

For.  Ex. 

Total. 

July  18. 

lyUtz 

Kitchen 

413  00 
841  00 

200  00 
435  00 

75  30 

513  80 

1,210  40 

12  40 

%  80 

269  95 

270  10 
1,105  82 

585  10 
1,624  75 
1,210  40 

482  50 

Webb  

1,540  82 

By  Paying  Teller 

1,889  00 

"  Dom.  Collections 

300  00 
20  00 

1,200  00 
300  00 

1,500  00 
240  00 
150  00 

1,811  90 

41  00 

55  00 

300  00 

5  05 

28  40 

1,742  67 

175  80 
255  10 

46  10 
42  70 
295  10 

5,443  57 

July  19. 

516  80 

Webb 

275  10 
1.25S  00 

Lutz 

346  10 
1,842  70 

Brown,  J.  D 

Torrey 

540  15 
178  40 

By  Paying  Teller 

3,710  CO 

''  Dom.  Collections 

429  45 

814  80 

4,954  25 

THE   liOOKKEBPER. 


221 


[right  pace.] 


189 

- 

PTi 

t     SUNDRY  DEBITS 

CUBIKS  *Nn   iNhlVlDDAl,  DkBJTB 

DlK^tMl 

KEMI1 

LNCE8. 

CASH  ITEMS 

- 

"1 

n 

1 

'  ^ 

neCAPITULATION. 

H 

- 

- 

— 

NlckeU  2ud  Pennies, 

FnotioMl  Silver, 

eilTer  Dollars. 

Gold  Coin, 

National  CurrencT, 

Legal  Tender  Ourreuor. 

' 

Oaab  Items, 

^ 

Total  Cash,    ' 

Sundry  Debits, 

Checks  and  Individual  Debits, 

Notes  Discounted. 

ReiQittanoes, 

Total, 

J 

u 

L 

y 

^ 

u 

_j 

LJ 

U 

LI 

lJ 

lI 

LJ 

LJ 

, 

J 

u 

^; 

J 

— 1 

LJ 

y 

c 

J 

- 

J 

u 

COLLECTION  REGISTER. 


Date  Left. 

Xo. 

Dra^ver  or  Endorser. 

Drawer  or  Alake)'. 

Where  Payable. 

Date. 

July  19 
19 

1 
2 

3 
4 

S 

John  Rapson 

A.  Cranberry 

W.  H.  Webb 

Brown  Brothers 

^mith  &  Wood 

Drexel,  M.  &  Co 

Prince  &  W 

J.  H.Davis  &  Co 

Chicago 

N.  Y 

July  1 

10 

19 

15 

19 

A.  Apple 

J.  D.  Brown 

J, 

IJ 

19 

jj 

10 

[For  Form  of  Ruling  Collection  Register,  see  page  200.] 


DOMESTIC   TICKLER. 
August. 


Dale. 

Au. 

Payer. 

Amount. 

Collected  for 

Pemarks. 

July  IS 

4 

G.  A.  Lewis 

2,780  03 

Dis. 

Si22 


I>RACTICAL   BANKING. 


DOMESTIC   TICKLER.— Continued. 
September. 


July  18 
18 
18 


1  !  H.  Coulter 

2  W.  T.  Bartlett. 
S         R.  Ladd . 


1,000  00 
2,500  00 
3,400  00 


Dis. 
DJs. 
Dis. 


October. 


July  18 


3         O.  B.  Arnolds 


3,500  00 


FORM  OF  RULING 

Collection  Tickler. 

THUBSDAY, ISQ 


No.  or  IJ«. 
of  LetU-r 

Plyer. 

Wticre  Pijable 

To  Whom  Sent. 

For  Whom  Collected 

Amount. 

CIt. 

Kemarka. 

1                     t 

1                               1                               |; 

1                            '    i                                \ 

1                               1 

1               ____L             _._J! 

'                  1                  1!  1 

REGISTER. 


Time. 


30  ds. 
60  di. 
30  ds. 
30  ds. 
30  ds. 


Due. 


Aug.  3 
Sep.  11 
Aug.  17 
Aug.  21 
Aug.  21 


Amount. 


246  80 

47  25 

1.247  50 

385  10 

470  50 


Collected  for. 

Jolin  Rapson 
J.  W.  Torrey  . . . . 

W.  H.Webb 

E.  P.  Graham... 
J.I).  Brown 


First  Nat 
Arctic  . . . 
.\rctic  . . . 
Arctic  . . . 
Arctic  . .. 


C'k. 


The  bookkeeper. 


223 


-I        .-I  00 


'.  lAlOOt-l 


*r-oo 


oooio 


224 


PRACTICAL  BANKING. 


ITEMS    FOR    ILLUSTRATING    THE    DEBIT    AND    CREDIT 
JOURNALS. 

(1.)  Rec'd  notice  from  First  National  of  Cleveland  that  Brown  & 
Bacon's  d'ft  on  Hardin  had  been  paid,  and  the  amoiint,  $842.25.  placed 
to  oiu-  credit.  Brown  &  Bacon  deposited,  cash,  .$.500.  (See  Credit 
Journal,  deposits  column,  $1,342.25;  also  Depositors'   Ledger,  acc't  of 

B.  &  B.    For  charge  to  First  Nat.,  Cleveland,  see  Debit  Journal.) 

(2.)  Bo't  100  U.  S.  4s@123  (.?12.300).  paying  by  draft  on  Fourth  Nat., 
New  York.  (See  Credit  J.,  general  col.  for  credit  to  Fourth  Nat.,  and 
also  Debit  J.,  general  col.  for  credit  to  Government  stoclis.) 

(3. J  Rec'd  notice  from  Second  Nat.,  St.  Louis,  that  John  Adams's 
d'ft  on  Beeten  for  .$.500  had  ben  paid  and  placed  to  our  credit.    (See 

C.  J.,  deposit  col.,  and  D.  J.,  general  col.;  also  Depositors'  Ledger.) 

(4.)  Paid  bill,  stationery  and  printing.  .$47.50.  (See  D.  J.,  general 
col.) 

Note.— This  is  entered  to  the  account  of  "Expense."  In  some  banks 
the  general  expenses  are  divided  under  various  headings,  such  as 
"Salaries,"  "Stationery  and  Postage,"  "Rent,"  "Fuel  and  Gas,"  etc.  The 
"Expense  Account"  in  such  instances  would  embody  only  items  of 
contingencies  not  provided  for  by  special  classification.  Classifying 
yhe  items  is  a  matter  of  taste.  As  a  rule,  it  is  well  to  adopt  such  a 
practice. 

FORM   OF  CREDIT  JOURNAL. 

Wnnhinyton,  January  S,  1SS5. 


L.F. 


Title  of  Account. 


Brown  &  Bacon 

Fourth  National, N.Y. 

John  Adams 

Henry  Smith 

C.  C.  Brown 

National  Park,  N.  Y . . 

P.  Fisher 

Amos  Smith    

F.Hill 

Interest 

Col  &  I';xchange., 

Deposits 

Cash,  Dr.^ 


Items  and  Notation.     Col.  &  Ex.    Deposits.       Genet  al. 


500  Col.  852.25  .. 
U.  S.  4%s@123. 
Col 


C.  Goodnough 

J.  Peters  

F.  Brokaw 

R.  Albert 


Disct 


Disct.  Register 


10 
4 

3  14 
80 


1,342  25 

500 

250 

1,250 


3,979 
2,953  50 
2,467  50 


12,300 


4,000 

1,600 

1,256 

320 


12,742  25 


93  75 
24  19 


12,742  25 


32,336  19 


THE  BOOKKEEPER. 


225 


FORM  OT  DEBIT  JOURNAL.— FORM  443. 

Washington,  January  2,  1SS5. 


L.  F.  Title  oj  Account.  Items  and  Notations.     Col.  &  Ex.     Deposits 


First  Nat.,  Cleveland 

Governments 

Second  Nat.,  St. Louis 

p:xpense 

]H)urth  Nat.,  N.  Y.    .. 
Second  Nat..  Wash'n 

F.  Brokaw 

T.  Swift , 

L.  I.oveland 

H.  Smith 

John  Adams 

Bills  Discounted   

J)om.  Kxchange 


B.  &  B.  Col 

4's  pr.  dft.  4th  Nat  . . 

J.  Adams  Col 

Stationery,  Printing 


Remittance 

C.  C.  Brown's  K 
Goodnow,  4,0in 
Peters,  I.OUO. 
1,259  14 


Deposits,  Dr. 
Cash .  Cr 


120,  145  SO,  200. .. . 
8  10,  14  60,  105  30. 

300,  J2  50 

105,  318  10 

D.  R 

D.  R 


Checks  paid. . . 
Disbursements . 


1,259  14 
465  50 
128 

312  50 
423  10 


General. 


842  25 

12,300 

500 

47  SO 

1,000 

5.010 


4,000 
5,500 


5,288  24 


31,787  99 


FORM  OF  JOURNAL  RULING. 

FORM    NO.  341. 

DISCOUNT. 

Discounted.       ^°-       Drawer  or  End.    Drawee  or  Mkr 


Tan.  2 

2 

*       2 


P.  Fisher 

Amos  Smith. 
C.  Stevens. . . 


J.  C.  \ermont.. 

T.  Wilder 

Brown  &  Bacon 


Where  Pay. 


Washington 

N.  Y 

Chicago 


Date. 


Jan.  2 
Jan.  2 
Jan.  2 


60 
90 
60 


15 


226 


PRACTICAL   BANKING. 


(5.)  Sold  drafts  on  Nat.  Park,  New  York,  as  follows:  C.  Goodnow, 
?1.000,  exch.  .SIO;  J.  Peters,  ?1,G00,  exch.  $4;  F.  Brokaw.  $1,25G,  exch. 
$3.14;  R.  Albert,  $320  excli.  80c.  (See  C.  J.)  Rec'd  in  payment,  Good- 
now's  c'k  on  Second  Wash'n,  $4,010;  Peters's  c'k  on  do.,  $1,000,  balance 
cash;  F.  Brokaw's  c'k  on  us,  $1,259.14.  (See  D,  J,  and  Depositors' 
liedger,  d'ft  to  xVlbert  paid  in  casli.) 

(6.)  Discounted  notes  for  P.  Fislier,  $4,000;  Amos  Smith,  $3,000;  F. 
Hill,  $2,500.  Total  $9,500.  (See  D.  J.,  general  col.  from  Discount  Reg- 
ister; also  C.  J.  deposits,  and  col.  and  exch.  from  Discount  Register.) 

Note. — The  original  entries  of  these  transactions  would  be  those  in 
the  Discount  Register.  The  transactions  then  find  their  way  to  the 
Ledger  through  the  Debit  and  Credit  Journals. 

(7.)  Paid  checks  of  Swift,  Loveland.  Smith  and  Adams.  (See  Debit 
Journal,  deposits  col.) 

THE  DISCOUNT  REGISTER. 

The  purposes  served  by  the  Discount  Register  "re  what,  in  a 
mercantile  business,  would  be  found  in  the  use  of  a  Bill-book.  The 
formular  arrangement  of  the  Register  is  somewhat  more  extensive 
than  that  of  the  Bill-book,  as  the  information  desired  by  a  bank  covers 
a  broader  field  than  that  sought  by  a  commercial  house.  In  this  book 
are  recorded,  in  the  order  of  discount,  the  notes  which  become  the 
property  of  the  bank.  The  names  of  the  drawer  or  endorser  appear 
first,  and  then  come  those  of  drawee  or  maker.  Following  these  are 
columns  for  information  as  to  where  the  note  is  payable,  the  time 
specified  on  its  face,  date  when  due,  and  time  it  is  to  run  for  which  dis- 
count is  charged.    The  amount  of  the  note  is  sometimes  classified  under 

REGISTER. 


Pf^n  Due. 

To  Run 

Bills  Dis. 

Dom.Ex. 

Int. 

Col.&Ex. 

Proceeds. 

Credited  To 

Ok. 

March  6 
April     5 
March  6 

63 
93 
63 

4,000 

3,000 
2,500 

21 

46  50 
26  25 

6  25 

3,979 
2.953  50 
2,467  SO 

P.  Fisher 

Amos  Smith.. 
F.Hill 

v/ 
v/ 

4,000 

5,500 

93  75 

6  25 

9,400  00 

•THE  BOOKKEEPEU.  2S7 

two  headiugs,  as  seen  in  the  illustration,  viz.,  "Bills  discounted"  and 
"Domestic  exchange,"  and  sometimes  it  is  cntcrod  under  one  heading, 
as  "Amount"  or  "Face."  When  the  two  columns  are  used,  the  first 
embraces  the  notes  payable  at  home,  or  in  the  place  where  the  bank  is 
located,  and  the  latter  those  payable  at  other  places.  A  column  is 
provided  for  "Interest."  another  for  "Collection  and  Exchange,"  and 
one  also  for  '"Proceeds."  Finally  the  name  appears  to  whom  the  pro- 
Ci'cds  are  credited,  and  a  narrow  column  is  added  for  the  "check" 
which  is  made  as  the  items  are  posted. 

There  are  many  forms  of  this  book  in  use.  some  less  and  some 
more  elaborate  than  the  one  we  have  given.  Some  banks  treat  all 
notes  discounted  under  the  one  general  title  of  "Bills  Receivable,"  and 
use  as  a  record  only  the  simplest  form  of  a  bill-book.  In  many  banks 
a  large  number  of  books  are  used  which  the  experience  and  skill  of 
progressive  accountants  have  demonstrated  are  not  really  essential. 
There  is  a  growing  tendency  among  bank  accountants  to  dispense  with 
every  boolv  not  absolutely  necessary,  and  to  abridge  the  bookkeeping  in 
every  way  possilde.  This  is  a  commendable  spirit  of  reform,  but  care 
should  be  taken  that  the  abridgment  is  not  carried  to  excess,  lest 
grave  inaccuracies  creep  in  through  the  lack  of  proper  checks  and 
proofs. 

THE  OFFERIN(;-BOOK. 

Chapter  Vlll  is  devoted  chiefly  to  the  subject  of  discounting  paper. 
The  information  there  given  is  so  explicit  that  nothing  remains  to  be 
said  here  more  than  to  explain  some  special  functions  of  the  offering- 
book,  and  give  an  idea  of  its  place  in  a  system  of  bank  accounts.  On 
page  62,  in  the  chapter  referred  to,  reference  is  made  to  the  formula 
arrangement  of  the  offering-book.  There  is  no  prescribed  rule  for  tho 
form  to  be  employed.  Any  arrangement  that  will  best  meet  the  re- 
quirements may, be  adopted.  But  little  difference  in  the  style  is  to  be 
noticed  among  the  many  in  use.  We  submit  a  form  that  seems  to  QIl 
the  requirements.  The  form  may  be  improved  upon  for  some  institu- 
tions. Some  offering-books  have  a  column  headed  "Average  Balances." 
This  is  to  give  the  information  contained  in  the  average-book,  for  a 
description  of  which  see  page  59.  Where  an  average-book  is  kept,  the 
addition  of  the  average  balance  cohimn  is  not  essential,  and  if  it 
tends  to  make  the  book  cumbersome,  should  be  omitted.  The  offering- 
book  is  commonly  termed  a  memorandum  or  auxiliary  to  the  regular 
set.  It,  however,  acts  as  the  book  of  original  entry  for  the  class  of 
transactions  which  originate  therein.  From  the  offering- book  the  rec- 
ord is  carried  to  the  discount  register,  through  which  it  enters  the 
ledgers.  A  record  of  the  discounted  paper  must  also  he  carried  to  the 
domestic  ticklers,  if  payable  at  home,  or  to  the  domestic-exchange 
book,  if  sent  away  for  collection. 


228 


PRACTICAL  BANKING. 


In  many  banks  a  book,  called  the  Liability  Ledger,  is  used  in  which 
is  entered  the  ditails  of  their  loans.  Two  forms  are  given.  As  the 
amounts  loaned  to  any  individual,  or  for  which  he  is  liable  as  an  en- 
dorser, guarantor  or  otherwise,  are  thus  kept  together,  his  liability  can 
be  readily  ascertained. 

THE  DEPOSIT  JOURNAL. 

The  Deposit  .lournal  is  not  as  universally  used  as  the  General 
Ledger,  the  Tickler  or  Discount  Register.  It  is  used  in  many  country 
banks,  and  helps  to  simplify  and  abridge  the  entries  in  the  General 
Journal.  One  side  of  the  l)ook  shows  the  work  of  the  paying  teller, 
and  tlie  other  that  of  the  receiving  teller,  coupled  with  the  records  of 
certificates  of  deposit  issued.  Certificates  of  deposit  are  sometimes 
i!~sued  by  one  official  and  sometimes  by  another.  In  some  country 
backs  the  cashier  is  also  paying  teller  and  i-eceiving  teller,  i.  e.,  he 
performs  the  duties  of  both,  and  may  be  also  the  bookkeeper,  note 
teller  and  discount  clerk.  We  do  not  refer  to  the  functions  of  the 
various  departments  of  service  with  the  idea  that  the  various  duties 
must  1)0  performed  by  one  and  the  same  person.  If  the  one  person  acts 
as  both  paying  and  receiving  teller  the  Deposit  Jo'irnal  becomes  a 
uiere  cash-book  for  recording  a  special  line  of  transactions. 

DEPOSIT  JOURNAL. 
Debits,  Monday,  Jan.  5,  1SS5.  Credits,  Monday,  Jan.  5,  1885. 


C.  H.  Pine 

Jos.  Arnold 

F.  N  Benham 

H.  B.  Drew,  ISIO    .. 
T.  L,.  Bartholomew 

Wra.  E.  Seeley   .... 

I.  B.  Prindle 

E.  E.  Post 

Total  C'ks  Pd 

Total  Ctf'sPd 

Paying  Teller's 


Checks. 


210  40 

1,406  10 

75  50 

405 


S7  10 
146  60 


2,300  70 


Credits 


Ctf's  Dep. 


500 


175 


2,300  70 
675 


2.975  70 


■-3 

Names. 

Deposits. 

Ct/'s  Dep 

Alex.  Hawley 

W.  B   Hincks 

F.  W.  Marsh 

C.  H.  Pine 

750 

150  40 
75  SO 
535 

1,000 

J.  P.Wood 

Total  Deposits 

Total  Ctf's  issued. 

Receiving  Teller 

1,510  90 
Chs'd... 

1,510  90 
1,000  00 

2,510  90 

Besides  the  books  described  are  several  others  that  require  no 
lengthy  explanation.  One  of  these  is  the  Remittance  Register.  In  this 
is  entered  collection  items;  the  banks  to  which  they  are  sent  and  all 


DEPOSIT  LEDGER, 


FORM  OF  THE  BOSTON  PATENT  SELF-PROVING  INDIVIDUAL  BANK  LEDGER  AND  BALANCE  BOOK, 


—n 


THE   nOOKKEEPEU.  229 

the  details  pertainiug  to  their  collectiou.  The  Register  of  Certificates 
of  Deposit  is  for  the  eutry  of  all  deposits  for  which  certificates  are 
giveu.  The  Draft  Register  is  another  boolc  iu  which  is  entered  all 
drafts  drawn  on  correspondent  banlvS.  Formerly,  the  forms  of  drafts 
wert-  printed  with  stubs;  these  were  filled  up  with  a  proper  entry  on 
the  stub  and  then  detached  and  sent  off.  By  using  this  book  stubs 
are  discarded;  drafts  are  prepared  in  tablets,  usually  of  one  hundred 
each,  and  tilJed  up  and  entered  in  the  Draft  Register.  Then  they  are 
ready  for  remittance.  Two  other  bool^s  require  brief  mention.  One 
of  these  is  the  Daily  Statement  Register.  The  numbers  stand  for  the 
various  accounts  in  the  General  Ledger,  and  by  thus  bringing  them 
together  the  daily  condition  of  the  banli  is  ascertained.  Lastly,  is  the 
Daily  Balance  Book,  in  which  is  entered  the  daily  balances  of  the  in- 
dividual accounts. 

THE  NEW   YORK   OR   BOSTON   SYSTEM. 

Having  described  the  older  method  of  keeping  the  accounts  of  a  bank 
and  all  the  principal  and  auxiliary  books  needful  for  that  purpose,  we 
shall  now  describe  a  newer  method,  which  is  known  as  the  New  York 
or  Boston  System. 

The  first  improvement  to  the  regular  Double  Eutry  Ledger  was,  in- 
stead of.giving  each  depositor  a  page  account,  to  take  the  accounts  and 
record  them  on  several  pages  in  alphabetical  order,  one  after  the  other 
on  the  page,  throwing  the  debit  and  credit  column  to  the  right,  and 
carrying  the  balances  down  in  red  ink  in  the  credit  column,  the  same 
as  was  done  when  the  accounts  were  given  a  full  page. 

By  this  change  the  ruled  cross  lines,  made  when  balancing,  were  no 
longed  needed.  At  this  time  the  Balances  were  copied  from  the  Ledger 
every  day  into  a  book  called  the  Dailj-  Balance  Book. 

To  this  form  some  bookkeeper  added  two  balance  columns— a  credit 
balance  and  a  debit  balance  column,  which  were  placed  side  by  side 
with  the  credit  and  debit  columns.  Some  other  bookkeeper  conceived 
the  idea  of  doing  away  with  the  debit  balance  column  and  recording  an 
occasional  overdraft  in  the  credit  balance  colunm  iu  red  ink.  This 
change  was  applied  to  the  old  double  entry  ledger  system,  as  well  as 
to  the  new  line  account  system,  as  it  was  then  called.  Both  of  these 
foi'ms  are  still  used  by  many  banks. 

The  revolution  in  keeping  depositors'  accounts  started  in  1852,  when 
a  bookkeeper  in  a  Boston  bank,  Mr.  Lane,  got  tired  of  writing  the 
depositors'  names  over  and  over  every  day.  So  he  prepared  a  form 
with  a  wider  page  which  would  accommodate  three  days'  work  on  one 
page.  As  may  be  supposed,  this  idea  was  the  invention  of  a  man 
whose  prime  object  was  to  save  himself  work.  Mr.  I>ane  still  con- 
tinued using  his  Daily  Balance  Book  at  this  time  and  the  teller  iu  the 
same  bank  suggested  the  adding  of  the  Balance  column  to  the  form, 


230  PRACTICAL   BANKING. 

between  the  rulings  of  the  eeveral  days.  This  was  done  and  accordingly 
it  did  away  Avitli  the  Daily  Balance  Book  entirely,  and  likewise  the 
labor  incident  thereto. 

Such  was  the  origin  of  the  Skeleton  Ledger,  or  Boston  System,  as  it 
was  styled  in  New  York.  The  teller  in  the  Boston  bank  afterwards 
became  associated  with  a  New  York  bank  and  there  introduced  Mr. 
Lane's  idea.  However,  at  this  time,  instead  of  preserving  the  old  terms, 
debit,  credit,  and  balance,  the  columns  were  given  their  true  names  of 
deposits,  checks,  and  balances.  The  next  improvement  was  adding  the 
checks  in  detail  column,  the  credits  for  deposits  and  the  debits  for 
checks  being  made  direct  from  the  deposit  slips  and  checks  respectively. 
Thus,  the  Deposit  Journal  was  discarded  and  the  Ledger,  Balance 
Book  and  Journal  combined. 

With  experience  this  form  was  changed  and  three  more  columns 
added  to  the  opposite  page,  permitting  six  days'  business  to  be  recorded 
with  one  writing  of  the  depositors'  names.  The  left-hand  page^  begin- 
ning with  Monday,  the  work  of  six  days  being  placed  upon  the  open 
book,  three  days  on  the  left  and  three  days  on  the  right. 

Later,  another  bookkeeper  conceived  the  idea  of  saving  more  time 
by  cutting  off  the  next  leaf,  making  a  short  leaf;  thus  in  conjunction 
with  the  bookmaiier,  short  leaves  came  into  use,  the  object  of  which  was 
to  save  re-writing  the  depositors'  names  so  often.  One  short  leaf  was 
first  used,  but  now  the  books  are  made  sometimes  with  as  many  as 
twelve  short  leaves. 

Small  banks,  not  iiaving  many  depositors,  still  continue  to  write 
their  names,  but  in  most  of  the  larger  banks  all  the  writing  in  the 
ledgers,  which  was  formerly  done  by  the  pen,  is  accomplished  by  the 
printer,  so  that  the  writing  in  of  ever-varying  figures  is  almost  the 
sole  clerical  task  left  for  the  bookkeeper;  even  the  depositors'  names 
are  now  printed  instead  of  written  as  formerly.  With  the  printing  of 
the  depositors'  names  another  advantage  has  been  gained  in  the  short 
leaves,  for  these  are  now  so  made  that  instead  of  having  to  transfer 
the  depositors'  balances  at  the  end  of  every  week — l)y  folding  the 
short  leaf  back,  the  balance  on  the  last  day  of  the  week  is  entered  into 
the  balance  column  at  the  extreme  left  of  the  short  leaf,  which,  after 
it  is  folded  back  into  its  original  position,  brings  the  balance  into 
proper  order  for  the  first  day  of  the  succeeding  week  without  re- 
writing. 

Keeping  a  thousand  accounts  in  an  ordinary  old-style  ledger  has 
been  likened  to  keeping  a  thousand  miscellaneous  articles  in  a  barrel. 
The  accounts  are  fished  out  once  a  month,  sorted  over,  ])ronounced 
coiToct,  and  then  all  thrown  back  again.  The  New  York  Bank  Account 
System  may  be  called  a  well-arranged  and  scientifically  subdivided 
system  of  shelves  for  accounts.  A  glance  suffices  to  inventory  any 
given  shelf  and  to  tell  whether  there  is  anything  on  it  tliat  does  not 
belong  there. 


THE   BOOKKEEPER.  231 

In  the  way  of  a  further  explanation  of  the  system,  it  may  be  re- 
marked tliat  the  Depositors'  Ledger  is  intended  to  serve  as  a  day-book 
and  Itdger  combined.  The  overdrafts  or  asset  balances  are  entered 
in  red,  and  the  liability  balances  in  black  ink.  In  the  form  (Appendix 
A  1;  is  given  a  page  showing  the  entries  for  a  week.  It  will  be  seen 
that  the  depositors'  accounts  run  horizontally  across  the  page.  First 
comes  the  balance  deposited  in  the  beginning  or  brought  forward  from 
the  page  where  the  name  previously  appeared.  Then  there  are  two 
narrow  columns  under  the  heading  "checks  in  detail."  The  first  of 
these  columns  belongs  to  the  second  account  in  the  compartment;  and 
the  second  column  to  the  first  account  in  the  compartment.  The  next 
two  columns  are  for  the  totals  of  checks  and  deposits.  The  sixth 
column  is  a  space  for  explanations  on  the  deposits  or  other  credits. 
The  seventh  column  contains  the  balance  at  the  close  of  the  day.  Fol- 
low ing  this,  still  to  the  right,  the  same  is  repeated  under  another  day. 
A  page  eighteen  inches  in  width  will  give  space  for  thi'ee  days'  trans- 
actions. Running  across  both  pages  of  the  book,  six  days'  business  is 
recorded  before  the  name  is  rewritten.  The  object  of  dividing  the 
page  into  compartments  with  horizontal  lines,  and  placing  only  two 
accounts  in  one  compartment,  is  to  aid  the  eye  in  its  sighting  across 
the  page  from  the  side  where  the  name  is  written. 

In  footing  the  balance  columns  the  overdrafts  are  deducted,  mak- 
ing the  footing  show,  not  the  total  liability  of  the  bank  for  deposits, 
but  the  "net  total  deposits."  This  is  one  of  the  objections  to  be  urged 
against  the  system.  The  overdrafts  of  depositors  are  assets.  They 
may  be  serviceable  in  paying  depositors,  and  they  may  not;  they  are 
certainly  not  as  reliable  as  money  in  the  vault.  And.  besides,  a  state- 
Uicm  of  a  bank  for  the  benefit  of  stockholders  ought  to  show  the 
total  deposits  and  the  aggregate  of  overdrafts  as  two  separate  items. 

After  footing  the  balance  and  total  columns  of  the  depositors'  ac- 
counts for  the  day,  a  general  statement  may  be  written  up  by  adding 
capital  stock  and  other  general  accounts,  if  not  too  numerous.  The 
column  entitled  "Total  checks"  may,  in  entering  the  impersonal  or  gen- 
eral accounts,  be  used  for  all  cash  disbursed.  The  "Total  deposits" 
column  may  contain  all  cash  receipts;  in  this  way  the  balance  boo : 
will  serve  to  take  the  place  of  a  general  ledger. 

One  advantage  of  this  method  which  recommends  it  is  the  easier 
locating  of  errors.  Each  page  is  susceptible  of  proof  in  itself,  and 
thus  an  error  may  easily  be  pinned  down  to  a  small  number  of  entries. 

Books  are  also  made  by  which,  with  the  use  of  short  leaves,  one 
writing  will  carry  an  account  through  two  months  or  longer. 

A  leaf  about  eighteen  inches  square  will  give  space  for  thirty 
accounts  six  days.  The  two  pages  of  such  a  book  will  serve  thirty  ac- 
counts thirteen  days.  One  writing  of  an  account  will  carry  it  through 
a  month.  The  lines  on  which  the  names  are  written  are  about  five- 
eighths  of  an  inch  apart,  and  they  alternate  in  color,  first  blue  and 


232 


PRACTICAL  BANKING. 


then  red.  The  change  of  color  serves  to  guide  the  eye  correctly  across 
the  page,  or  the  two  pages.  For  each  day  there  is  a  pair  of  columns, 
the  first,  or  left-hand  column,  being  for  debits  or  checks,  and  the  sec- 
ond, or  right-hand  column,  for  credits  or  deposits;  the  balances  are 
carried  forward  in  pencil.  The  calculation  in  carrying  the  balances 
forward  is  done  mentally.  It  would  be  surprising  to  one  not  expert 
in  this  work  to  observe  the  rapidity  with  which  the  bookkeeper  per- 
forms these  mtntal  calculations.  With  three  amounts  on  one  side  and 
two  on  the  other,  the  items  ranging  in  value  from  the  units  column  to 
several  thousand,  the  calculation  is  performed  mentally,  the  balance 
struck  without  a  moment's  hesitation,  and  placed  in  its  proper  columu 
for  the  next  day.  For  example,  the  following  represents  a  day's 
transactions: 


Debit. 

Credit. 

7,462  25 
35  60 

12.620  32 

379  84 

284  60 

The  balance,  $5,027.30,  is  dotted  down  with  surprising  rapidity. 
In  footing  the  columns  the  pencil  figures  only  are  taken  to  get  the 
total  balances.  The  amounts  in  ink,  when  footed,  show  total  drafts 
and  total  deposits  for  the  day. 

The  plan  followed  by  which  the  entries  find  their  way  from  the 
tellers'  counters  and  the  exchanges,  to  the  depositors'  ledger  and 
balance  book,  varies  in  different  banks.  The  volume  of  business  has 
much  to  do  with  the  system  in  use.  It  is  well  worth  the  space  here 
to  give  a  description  of  the  plan  in  vogue  in  the  National  Park  Bank. 
This  bank  is  a  representative  institution  with  over  ten  thousand  active 
accounts  on  its  depositors'  ledgers.  There  are  two  receiving  tellers. 
A  depositor  presents  his  book  with  deposit  enclosed.  If  currency  or 
specie  form  a  part,  it  is  counted  and  dropped  into  the  till  or  money 
drawer.  The  checks  and  other  items  are  not  carefully  examined.  If 
the  currency  and  coin  are  correct,  the  amount  according  to  the  de- 
posit slip  is  entered  in  the  pass-book.  The  deposit  slip,  the  checks, 
drafts,  or  other  items  are  kept  together  until  a  checking  clerk  takes 
them  away.  These  items  of  the  deposit  slip  are  then  carefully  ex- 
amined and  rechecked  upon  the  deposit  slip.  If  an  error  is  discovered 
the  correction  is  made  upon  the  slip.  The  checks,  drafts,  etc.,  are  now 
classified  and  passed  over  to  other  clerks.  Some  go  to  clerks  who 
enter  them  up  ready  for  passing  tlu-ougli  the  Clearing-house.  Othex's 
must  be  sent  out  for  collection  by  the  bank's  messen.i:(>r.  The  checks 
of  the  bank's  own  depositors  and  correspondents  go  to  clerks  who 
enter  them  up  preparatory  for  the  bookkeepers.  This  is  followed  up  so 
closely  that,   at   the   hour   for  closing  the   receiving  teller's   window, 


THE   BOOKKEEPER.  233 

e\ery  check,  draft  and  other  item  of  the  day  has  been  charj?ed  up  at 
the  checking  counter.  The  items  in  the  balance  ledgers  are  taken 
from  the  books  kept  up  by  the  checking  clerks,  and  the  individual  book- 
keepers also  make  tip  their  ledgers  from  the  books  kept  on  the  check- 
ing counter. 

There  are  four  sources  from  wliich  the  balance  ledger  bookkeepers 
obtain  the  items  of  debits  to  the  accounts  in  their  charge.  These  are 
— first,  through  the  Clearing-house;  second,  tlirougli  the  paying  teller's 
department;  third,  from  the  receiving  teller's  department;  and,  fourth, 
thiough  the  note  teller's  department.  They  have  been  classified  and 
entered  up  at  the  checking  counter,  so  that  he  has  only  to  write  down 
the  totals.  There  are  some  institutions  having  accounts  with  the  Park 
Bank  wihch  draAv  as  many  as  forty  checks  in  a  day;  tnany  draw 
twentj'  to  thirty. 

In  this  bank  the  accounts  of  depositors  or  dealers  are  divided 
into  four  classes,  and  are  kept  by  eight  individual  bookkeepers- 
four  of  whom  are  on  depositors'  ledgers  and  four  on  the  balance 
ledgers  thus: 

Names  from  A  to  D, 
E  to  K, 
L  to  R, 
S  to  Z, 
The  accounts  of  correspondents  or  other  banks  are  arranged  under 
two  divisions: 

A  to  Ij, 
M  to  Z. 
Thus  twelve  individual  bookkeepers  are  employed,  eight  on  de- 
positors' accounts,  and  fotu*  on  accounts  of  other  banlcs.  The  balance 
books  are  extended  before  the  hour  for  opening  next  morning,  and 
the  footings  are  made  so  as  to  compare  with  the  general  ledger  be- 
fore the  close  of  each  day. 

Besides  the  Individual  or  Deposit  Ledger,  other  books  are  also 
used.    The  first  that  may  be  mentioned  is  the  General  Ledger. 

The  Draft  Balance  Register  is  another  book  used  by  a  bank  for 
keeping  an  account  with  a  correspondent  bank  on  which  it  is  ac- 
customed to  draw.  The  book  is  used  especially  by  a  country  bank 
for  keeping  its  account  with  a  reserve  or  correspondent  bank  in  one  of 
the  large  cities. 

Another  book  is  the  Certificate  of  Deposit  Register  and  Ledger. 
This  contains  all  the  data  usually  desired  in  a  Certificate  of  Deposit 
Register,  and  in  addition  affords  the  means  to  keep  the  ledger  ac- 
couni  of  certificates  of  deposit  in  actual  use.  The  certificates  are 
registered  each  day  as  issued,  and  at  the  close  of  the  day's  business 
the  total  is  carried  into  the  balance  column  in  black  ink.  Certificates 
paid  and  canceled  are  entered  on  the  right-hand  side,  and  at  the  close 
of  business     each  day  tlie  total  is  carried  into  the  balance  column  iu 


234 


PRACTICAL  BANKING. 


red  Ink.  The  difference  being  added  to,  or  subtracted  from,  the  balance 
of  the  day  before,  and  the  result  carried  down  as  the  new  balance.  It 
will  be  noted  that  a  column  is  provided  for  lieeping  account  of  interest 

CERTIFICATE  OF  DEPOSIT 


[LEFT  HALF.] 

Form  17. 

! ■     ' 

When  Issued 

DEPOSITED  BV 

Time 

Int. 
Rate 

Wh 

Year  &  Mo        Day 

Month 

1886 

9 

r,  Mo 

s 

1037             Time 

paid  on  certificates,  and  that  the  total  is  carried  along  from  day  to  day 
to  be  charged  to  profit  and  loss  account  as  a  part  of  gross  expenses 
when  the  dividend  period  arrives.  By  the  use  of  this  form  it  is  pos- 
sible to  keep  two  ledger  accounts  in  the  book,  in  addition  to  the 
record  of  the  certificates  on  the  register  side. 


[LEFT  PAGE  ] 


Form  18. 


DISCOUNT  REGISTER 


...^ 

...» 



"1 

,... 



-. 

,.i«Ksr.».u, 

1 

r_... 

^ 

- 

—"• 

1 

■                    ,g^ 

,.. 

1 

1 

B,.„    |„,^. 

^ 

,., 

., 

1'  :: 

^  ::. 

.-,                       : 

1 

--U, 

_. 

The  next  book  to  be  described  is  the  Discount  Register  and  Ledger. 
Besides  containing  all  the  data  usually  desired  in  discount  registers, 
it  affords  the  means  to  keep  an  account  of  notes  paid  each  day.  In 
actual  use  the  notes  are  registered  each  day  as  taken.  At  the  close 
of  the  day's  business  the  total  of  the  notes  taken  is  carried  into  the 
balance  column  in  black  ink.  Payments  made  on  notes  are  entered  on 
the  right  side,  and  at  the  close  of  business  each  day  the  total  of  the 
payments  for  that  day  is  carried  into  the  balance  column  in  red  ink. 
The  difference  between  the  total  of  payments  and  the  total  of  notes 
taken  that  day  is  added  to  or  subtracted  from  the  balance  of  the  day 
before  and  the  result  carried  down  as  the  new  balance  of  loans. 
Should  any  note  be  paid  in  part,  that  fact  is  noted  by  the  letter  P 
written  in  the  column  next  to  amount  of  payment  on  the  right  hand 
side  and  on  the  same  line  the  payment  appears.  All  payments, 
whether  partial  or  whole,  should  be  entered  in  column  of  "payment 
made"  on  the  line  on  which  that  particular  note  is  registered.  When  a 
pajment  satisfies  the  balance  of  a  note  previously  partially  paid  thar 
fact  can  be  shown  by  entering  the  letter  B  in  the  proper  column.  The 
discount  taken  at  the  time  a  loan  is  made  or  a  note  bought  is  entered 
in  the  column  headed  "discount,"  and  interest  collected  on  notes  not 


THE   BOOKKEEPER. 


285 


paid  at  maturity  or  on  demanrt  notes,  etc.,  is  entered  iu  the  column  of 
"interest  received."  Interest  received  on  United  States  bonds  or  other 
investments  not  carried  as  loans  can  also  be  entered  here,  if  desired. 


REGISTER  AND  LEDGER. 


[RIGHT  HALF.] 


D 

"~~ 

'^^ 

1 

r 

— 

— 

~ 

Certificates  Paid 

„.,.     1 

1, 

Year 

.......             J                .._ 

Amount           j       Int.  Paid     1             No. 

Vr.  <  Mo 

Day 

ifl97 

5 

n 

0 

s 

•S 

G     .' 

5 

„. 

S-25 

00    1 

1^90 

-! 

n 

n 

4 

50 

Dec 

2 

r- 

6 

0 

0 

24 

00 

1          ■       95.J  n 

Dec 

The  total  of  "discount  received"  and  "interest  received"  should  be 
carried  along  from  day  to  day  until  the  dividend  period  comes  around, 
when  the  total  should  be  carried  to  the  profit  and  loss  account  and 
proper  entries  made  on  this  book. 


AND  LEDGER 


[RIGHT  PAGE.] 


T^ 

ttn. 

Mm 

_ 

__ 

^_ 

_ 

_ 

CR- 

-«- 

^ 

^ 

p. 

Bars 

Mj 

— 

— 

— 

.a.^...^w...r.^D 

'•-'■' 

—  " 

D«.r^ 

'"'" 

" 

* 

* 

' 

* 

'H 

ISM 

1 

0 

0    0 

h'JIn 

r-.v  r.-i^^i.  _ , 

D« 

1 

CERTIFIED  CHECK  REGISTER  AND  LEDGER. 
[LEFT  HALF.]  Form  15. 


Date  Ceetified 


J''""'"T' 


W    F.   Fuller 


E.   L-   Edwar<li 


[RIGHT  HALF.] 


^s 

^s 

— 

=^*^ 

~^^ 

— 

-^^ 

^^^ 

'^ 

I. 

B.I   AN-F 

r,<FrK<:   P»in                                       Matf  Paip 

ij-  ^"'^^ 

Amounl    Pai.l       1         No 

To  Whr.n. 

Vr   .,   Mo 

Dav 

0 

0 

f. 

3 

r7 

1 

t-.i7 

1 

1 

1 

1 

i> 

HD5 

Julm  El..'..-,1 

1  ;in. 

4 

1 

1) 

(> 

OT.S 

r.    I.     (  u\h-:< 

l.-rn. 

4 

•  > 

BOJ 

1  1      ..       R.  V  .     ■ 

Inn 

4 

Lastly,  is  the  Certified  Check  Register  and  Ledger,  in  which  is 
kept  a  complete  record  of  all  checks  that  are  certified  by  the  teller. 
As  we  have  stated  elsewhere,  it  is  the  usual  custom  to  charge  certified 


236 


PRACTICAL  BANKING. 


checks  to  the  account  of  the  depositor  immediately  after  certifyinsj 
them,  hut  it  is  often  the  case  that  several  days  elapse  before  the 
check  is  presented  at  the  bank  for  payment.  By  the  use  of  this  form  it 
is  possible  to  keep  a  complete  i-egister  record  of  the  certified  checks 
and  also  the  ledger  account  of  the  same.  All  banks  in  certifying 
checks  should  charge  them  direct  to  the  account  of  the  party  for  whom 
it  is  certified,  and  then  throw  the  amount  to  the  credit  of  "certified 
checks"  and  register  it  in  a  certified  check  register.  It  is  often  de- 
sirable to  know  to  whom  a  particular  certified  check  is  paid.  A  column 
is  provided  in  which  to  enter  the  name  of  the  person  cashing  the 
check  and  also  the  date  when  it  is  paid. 


THE  EAGAR  SYSTEM. 


Finally  tliere  remains  to  be  described  the  Eagar  system.  The  same 
books  may  l)e  used  in  this  as  in  the  system  last  described  except  the 
Individual  Ledger.  The  mode  of  usin.^  the  Eagar  Ledger  i..  thus  described 
by  the  author : 

In  order  to  get  the  best  results  from  the  ledger,  the  cliecks  and 
deposits  columns  of  the  teller's  book  (or  other  books  of  original  entry) 


THE  BOOKKEEPER.  237 

should  be  subdivitled  iuto  as  niauy  columns  as  there  are  sections  in 
the  ledger.  The  ledger  is  generally  divided  into  four  sections:  A  to 
D,  E  to  K,  L  to  P,  and  Q  to  Z.  The  columns  of  the  teller's  book  should 
be  divided  under  the  same  headings. 

The  aggregate  of  the  balances  for  each  section  is  entered  under 
the  line  at  the  foot  of  the  teller's  book.  The  checks  and  deposits  are 
eutered  under  their  respective  headings,  and  at  the  close  of  business 
the  total  deposits  are  added  to  the  section  balance,  and  the  total 
checks  subtracted,  thus  carrying  an  account  against  each  section  of 
the  ledger.  As  the  items  go  to  the  bookkeeper,  he  enters  them  direct 
to  the  account,  being  careful  to  record  the  balance  of  each  account, 
before  posting,  on  the  proof  sheet  under  "old  balances,"  and  at  the 
same  time  check  the  numeral  on  the  margin  of  the  proof  sheet  to  cor- 
respond with  the  ledger  page  on  which  the  account  is  located.  At 
the  close  of  business  he  will  have  a  record  of  the  old  balances  of  all 
accounts  affected,  and  the  numbers  checked  on  the  proof  sheet  will 
indicate  the  pages  to  whicli  he  must  turn  to  extend  his  new  balances. 
As  the  new  balances  are  extended  thej^  are  recorded  on  the  proof 
sheet  under  "new  balances."  The  total  new  balances  are  added  to 
the  section  balance  at  the  foot  of  the  sheet,  and  the  total  old  balances 
subtracted,  thus  carrying  a  second  account  against  each  section  of  the 
ledger.  If  the  account  on  the  proof  sheet  balances  with  tlie  account 
on  the  teller's  book,  a  perfect  check  is  had  through  the  balances  that 
change  for  the  day. 

If  it  is  desired  to  keep  a  daily  record  of  the  total  overdrafts, 
a  separate  account  can  be  kept  on  the  proof  sheet,  using  the  columns 
provided  for  checks  and  deposits  for  "old  overdrafts"  and  "new  over- 
drafts." If  it  is  not  desired  to  keep  the  total  overdrafts,  the  old  over- 
drafts can  be  recorded  under  the  head  of  new  balances  and  new 
overdrafts  under  old  balances.  This  is  equivalent  to  a  subtraction  of 
overdrafts  from  the  credit  balances. 

Ill  opening  the  ledger,  the  accounts  are  distributed  according  to 
the  index,  wliicli  is  always  visible  when  the  booli  is  open.  Fi-om  25 
to  50  pages  should  be  left  at  the  back  of  each  section.  Thus  the  ac- 
counts are  distributed  in  compact  groups,  with  the  initial  page  of  each 
group  recorded  on  the  index.  When  the  space  allowed  a  group  is 
filled,  additional  space  is  allowed  from  the  surplus  at  the  back  of  the 
section  and  the  initial  page  again  recorded  on  the  index.  In  this  way 
the  index  forms  a  key  to  the  location  of  the  various  groups  as  they 
progress  through  the  section. 

These  instructions  apply  in  cases  where  the  teller's  book  is  ar- 
ranged to  conform  to  the  ledger  sections.  The  experienced  book- 
keeper will  understand,  however,  that  the  footings  can  be  carried 
forward  from  proof  sheet  to  proof  sheet  and  the  aggregate  figures 
shown  on  the  last  sheet.    If  a  double  check  is  desired,  the  checks  and 


238 


PRACTICAL   BANKING. 


deposits  can  be  listed  on  tlie  proof  sheet  (or  the  total  checks  for  each 
account  carried  to  the  proof  sheet)  and  there  footed  and  brought  into 
balance  with  any  book  of  original  entry. 


THE  LOOSE  LEAF  LEDGER. 

Before  concluding  this  chapter,  thei'e  is  another  form  of  ledger 
that  should  be  briefly  noticed.  Loose  leaves  have  been  used  for  many 
years,  because  there  are  some  very  apparent  advantages  in  using 
them.  With  these  individuals  have  been  busy  trying  to  perfect  a 
system,  and  liave  made  considei'able  progress.  One  of  the  advantages 
of  such  a  system  is  that  the  accounts  can  be  constantly  kept  in  an 
alphabetical  order,  thus  dispensing  with  an  index,  and  yet  enabling 
the  seeker  to  find  any  account  more  quickly  than  by  any  other  method. 


BOOK  OPEN  AND  READY  FOR  USE. 


The  accounts  are  numbered  by  sheets,  and  when  a  sheet  is  filled  and 
balanced  it  is  placed  in  the  transfer  binder  and  numbered  1,  another 
sheet  marked  2,  and  with  the  same  name,  is  placed  in  the  ledger  on 
which  the  account  is  continued.  By  keeping  the  transfer  binder 
properly  indexed  and  numbered  all  accounts  can  be  readily  traced. 

Of  course,  the  ledger  may  be  made  very  small,  and  can  be  easily 
enlarged  or  diminished.  The  cuts  represent  this  ledger  open  and  ready 
for  use,  and  also  for  the  removal  of  sheets. 

Notwithstanding  the  best  efforts  to  adopt  a  system  of  bookkeeping 
as  nearly  perfect  as  possible,  errors  will  occur,  which  may  lead  to 
serious  results.  Bookkeepers  have  sometimes  failed  to  credit  the  ac- 
count of  a  depositor  the  full  amount  due  to  him,  or  have  made  incorrect 


THE  BOOKKEEPER. 


230 


additions,  whereby  his  checl<s  have  been  dishonored  for  lack  of  funds, 
when  iu  truth  his  deposit  was  quite  large  euougli  to  pay  them.  Should 
a  bank  make  a  mistake  of  this  Icind,  it  would  be  liable  for  all  the 
injury  sustained  by  the  depositor  from  loss  of  credit,  or  in  any  other 
way  attributable  to  the  action  of  the  bank.  To  guard  against  such 
nustakes,  some  banks  have  one  or  more  bookkeepers  duplicate  all 
ledger  entries  on  loose  sheets  of  paper,  who  put  the  account  of  each 
depositor  on  a  separate  sheet,  and  from  these  sheets  and  from  their 
checks^  write  up  the  pass-books  of  depositors.  By  malving  a  compari- 
son between  tliese  sheets  and  the  ledgers  any  difference  is  at  once 
noted  and  corrected.  Suppose  a  check  is  presented  for  payment  and 
the  ledger  does  not  show  a  sufficient  balance,  before  dishonoring  it 
the  other  record  is  examined,  and  if  this  agrees  with  the  ledger,  then 
the  evidence  is  very  strong  that  the  accoimts  have  been  incorrectly 
kept;  but  if  they  do  not  agree,  an  examination  would  be  made  immedi- 
ately to  find  the  error. 


BOOK  UNLOCKED,  READY  FOR  REMOVAL  OF  SHEETS. 


RECONCILEMENT   SHEETS. 

Long  as  this  chapter  is,  one  other  matter  will  be  noticed  before 
concluding  it.  As  no  accounts  are  more  easily  manipulated  by  book- 
keepers than  those  of  corresponding  banks,  "reconcilement  sheets"  are 
used  in  those  most  prudently  managed,  whereby,  if  a  bookkeeper 
makes  a  false  proof,  the  irregularities  leading  to  it  can  be  traced. 
I'he  following  form  is  used,  which  can  be  easily  understood: 


240 


PRACTICAL  BANKING. 


V 

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»  USEFUL   FORMS.  240u 

BOND  FOR  LOST  CERTIFED  CHECK. 

A'ii07c  all  Men  by  these  Presents,  That  I of  No , 

in  the  city  of  New  York,' Borough  of  Manhattan,  am  held  and  firmly  bound  unto  The 

Twelfth  Ward  Bank  of  llie  City  of  New  York  in  the  sum  of dollars, 

lawful  money  of  thi-  United  States,  to  be  paid  to  the  said  The  Twelfth  Ward  Bank,  its  suc- 
cessors and  assigns,  for  which  payment  I  bind  myself,  my  heirs,  executors,  administrators 
and  assigns  forever. 

Sealed  with  my  seal  and  dated  this  tenth  day  of  May,  in  the  year  one  thousand  nine 
hundred. 

Whereas,  The  said having  made  his  certain  check  or  draft  to  the 

order  of drawn  upon  the  said  The  Twelfth  Ward  Bank  for  the  sum 

of  dollars,  dated  February  2d. 

Whereas,  The  said  check  was  thereafter  duly  certified  by  The  Twelfth  Ward  Bank  and 
charged  in  the  usual  manner  against  the  account  of  said  

Whereas.  That  the  t-aid  check  was  never  received  by  the  said 

but  has  been  lost,  and  its  whereabouts  is  unknown  to  the  said 

H  'hereas.  The  said desires  to  have  his  account  credited  with  the 

said  amount  of  J 

JVo-u  this  Itidetilure  Jl  'itnesseth.  That  the  said will  forever  indem- 
nify and  save  harmless  the  said  The  Twelfth  Ward  Bank  fromany  loss  or  damage  by  reason 
of  the  payment  of  said  check  by  accident  or  otherwise  should  the  same  be  presented  for 

payment;  and  the  said promises  and  agrees,  in  case  the  said  check 

should  be  presented  for  payment  and  the  same  be  paid  by  accident  or  otherwise,  to  repay 
the  said  amount  to  The  Twelfth  Ward  Bank,  its  successors  or  assigns. 

/«  Witness  Jl  'hereof.  The  said has  hereunto  set  his  hand  and 

seal  this  ....  day  of 1900. 


In  presence  of: 


State  of  New  York,  County  of  New  York,  ss: 

On  this . . .  day  of 1900,  before  me  personally  appeared 

to  me  known  anil  known  to  me  to  be  the  person  described  in  and  who  executed  the  same. 

State  of  New  Y'ork,  County  of  New  York,  ss: 

being  duly  sworn,  says  that  he  is  the  owner  in  fee  of  the 

premises  known  as  No that  the  same  are  free  and  clear  of  all 

encumbrances  except that  he  is  worth  the  sum  of dollars 

over  and  above  all  his  debts  and  liabilities. 

Sworn  to  before  me  this . . .  day  of 1900 


BOND  FOR  LOST  PASS  BOOK. 

Kno'M  all  Men  by  these  Presents,  That  1 of  the  County  of 

Mai  ion  and  State  of  Indiana,  am  held  and  firmly  bound  unto  the  Indiana  National  Bank 

of  Indianapolis,  Indiana,  in  the  penal  sum  of dollars,  for  the  payment 

of  which  sum,  well  and  truly  to  be  made,  I  do  by  these  presents  firmly  bind  myself,  my 

heirs,  executors  and  administrators,  sealed  with  my  seal  and  dated  this day 

of 190.. 

Now,  The  condition  of  this  obligation  is  such  that,  whereas  the  above  named  obligor 
is  a  depositor  with  the  said  Indiana  National  Bank,  and  said  bank  has  given  to  said  obli- 
gor a  pass  book  showing  the  various  amounts  deposited  by  him  with  said  bank,  and 
whereas  said  obligor  has  lost  said  pass  book  and  is  desirous  of  having  said  bank  give  to 
him  a  new  pass  book,  and  agrees  to  indemnify  and  save  said  bank  harmless  and  free  from 
loss  on  account  thereof. 

No'u,  If  the  said  obligor  shall  fully  protect  and  indemnify  said  bank  from  any  loss  in 
any  manner  whatever  on  account  of  said  bank  giving  to  him  said  new  pass  book,  then 
this  obligation  is  to  be  void,  otherwise  to  remain  in  force. 

And  the  said  obligor  hereby  certifies  and  agrees  that  the  balance  of  |  

due  him,  as  shown  by  the  books  of  said  bank,  is  correct. 

,,.  [Seal] 


2406 


PRACTICAL  BANKING. 


FORM  FOR  ASSIGNMENT  OF  POLICY  AS  COLLATERAL  SECURITY, 
(To  be  attached  to  and  retained  with  the  Policy  for  use  as  evidence  when  required.) 


Affix  Revenue 
Stamp. 

R  a  t  e  —  O  n 
loans  exceed- 
ing $1,000  and 
not  exceeding 
11,500,  25c;  and 
on  each  $500  or 
fractional  part 
thereof  in  ex- 
cess of  $1,500, 
25c. 


For  and  In  Consideration  of  the  Sum  of  One  Dollar  to 

in  hand  paid  by 

whose  P.  O.  address  is 

the  receipt  whereof  is  hereby  acknowledged,  and  for  securing  the 

money  hereinafter  mentioned hereby  sell,  assign,  transfer  and  set 

over  unto  the  said 

Policy  No issued  by  The  Equitable  Life  Assurance  Society  of  the 

United  States,  on  the  life  of 

with  all  right,  title  and  interest  therein,  together  with  all  moneys 
which  may  be  now  due  or  hereafter  payable  thereunder  and  all  divi- 
dends, benefits,  options  and  advantages  to  be  derived  therefrom,  in- 
cluding the  right  to  surrender  said  policy  and  to  receive  the  surrender 
value  thereof,  accounting  to  the  assignor  for  any  surplus  which  may  be 
realized  over  and  above  the  amount  due  upon  said  loan. 

And  for  the  above  consideration do  also  for executors 

and  administrators,  guarantee  the  validity  and  sufficiency  of  the  fore- 
going transfer  and  pledge  of  said  policy  to  said  assignee exec- 
utors, administrators  or  assigns;  and  their  title  thereto  will  forever 
warrant  and  defend. 

Upon  condition  that  this  assignment  shall  be  void,  and  the  interest 

of  the  assignee  released,  upon  the  repayment  of  the  sum  of 

dollars  to  the  said 

to  secure  which  this  pledge  is  made,  and  after  notice  of  such  repayment 
is  given  to  said  society  in  writing. 

In  Witness  IVhereof. have  hereunto  set hand .  .and  seal . . 

this   day  of 189. . 

In  the  presence  of 

[seal] 


\ 


State  of. 


.  .in  the  year  of  our 


County  of  

On  this day  of . . . 

Lord  189. .,  before  me  personally  came. 

to  me  known  and  known  to  me  to  be  the  individual,   described  in  and 

who  executed  the  foregoing  assignment,  and  acknowledged  that 

executed  the  same.  

(Perforate) 


COPY  OF  ASSIGNMENT. 
(To  be  detached  and  sent  to  the  society  as  notice  of  the  above.) 


This  iTo/vneed 
notbestamp'd, 
but  state  below 
the  amount  in 
Revenue  St'mp 
that  has  been 
affixed  to  the 
assignment. 


For  and  In  Consideration  of  the  Sum  of  One  Dollar  to 

in  hand  paid  by 

whose  P.  O.  address  is  

the  receipt  whereof  is  hereby  acknowledged,  and  for  securing  the 

money  hereinafter  mentioned hereby  sell,  assign,  transfer  and  set 

over  unto  the  said 

Policy  No issued  by  The  Equitable  Life  Assurance  Society  of  the 

United  States,  on  the  life  of 

with  all  right,  title  and  interest  therein,  together  with  all  moneys 
which  may  be  now  due  or  hereafter  payable  thereunder  and  all  divi- 
dends, benefits,  options  and  advantages  to  be  derived  therefrom,  in- 
cluding the  right  to  surrender  said  policy  and  to  receive  the  surrender 
value  thereof,  accounting  to  the  assignor  for  any  surplus  which  may  be 
realized  over  and  above  the  amount  due  upon  said  loan. 

And  for  the  above  consideration do  also  for executors 

and  administrators,  guarantee  the  validity  and  sufficiency  of  the  fore- 
going transfer  and  pledge  of  said  policy  to  said  assignee  exec- 
utors, administrators  or  assigns;  and  their  title  thereto  will  forever 
warrant  and  defend. 

Upon  condition  that  this  assignment  shall  be  void,  and  the  interest 
of  the  assignee  released,  upon  the  repayment  of  the  sum  of 

dollars  to  the  said 

to  secure  which  this  pledge  is  made,  and  after  notice  of  such  repayment 
is  given  to  said  society  in  writing. 

In  Witness  IVhereof. have  hereunto  set hand . .  and  seal . . 

this day  of 139. . 


In  the  presence  of 


[seal] 


USEFUL  FORMS.  240c 


PROXY. 

Know  all  Men  bv  Ihcsf  Presents,  That  I  . 


do  hereby  constitute  and  appoint 

Attorney  and  agent  for  me  and  in  my  name,  place  and  stead,  to  vote  as  my  proxy  at  any 

election 

according  to  the  number  of  votes  I  should  be  entitled  to  cast  if  then  personally  present. 

/«  Witness  Whereof,  I  have  hereunto  set  my  hand  and  seal  this day 

of one  thousand  eight  hundred  and  ninety 

Sealed  and  delivered  in  the  presence  of  


COLLATERAL  NOTE. 

$ Indianapolis,  Ind 190.. 

after  date. . .  .promise  to  pay  the  order  of  Columbia  National 

Bank  of  Indianapolis,  Ind dollars,  at forvalue 

received,  vyithout  any  relief  from  valuation  or  appraisement  laws,  with  interest  at  the  rate 

of per  cent,  per  annum  after  maturity,  having  deposited  with 

as  collateral  security 

which hereby  give  the  said authority  to  sell,  or  any  part 

thereof,  on  the  maturity  of  this  note,  or  at  any  time  thereafter,  or  before,  in  the  event  of 
said  securities  depreciating  in  value,  at  public  or  private  sale,  at  their  discretion,  without 

advertising  the  same,  or  giving   any  notice,  and  to  apply  so  much  of  the  proceeds 

thereof  to  the  payment  of  this  note  as  may  be  necessary  to  pay  the  same,  with  all  interest 

due  thereon ;  and  also  to  the  payment  of  all  expenses  attending  the  sale  of  the  said 

and  in  case  the  proceeds  of  the  sale  of  the  said shall  not  cover  the  principal, 

interest  and  expenses promise  to  pay  the  deficiency  forthwith  after  such  sale. 


COLLATERAL  NOTE. 

New  York 190. 

The  Following  Securities,  viz. : 


are  this  day  deposited  by  the  undersigned  with  the  National  Citizens'  Bank  of  the  City  of 
New  York,  which,  together  with  any  other  securities  now  or  hereafter  in  the  possession 
of  said  bank  in  which  the  undersigned  may  have  any  interest,  are  to  be  held  by  said  bank, 
its  successors  or  assigns,  as  collateral  security  for  the  payment  of  any  and  all  checks, 
draft.s,  notes,  endorsements  or  overdrafts  made,  or  discounts  obtained,  direct  or  contin- 
gent obligations  and  liabilities,  and  other  indebtedness,  heretofore  incurred  or  hereafter 
created  by  the  undersigned,  now  due  or  to  grow  due  to  said  bank;  and  said  bank  without 
demand  for  payment  or  any  notice  to  the  undersigned  may  sell  the  same  at  public  or 
private  sale,  and,  if  at  public  sale,  may  become  the  purchaser  thereof,  or  may  collect  said 
securitiesin  the  place  and  stead  of  the  undersigned,  with  or  without  suit,  and,  after  deduct- 
ing the  expenses  of  such  sales  or  collections,  the  said  bank,  its  successors  or  assigns,  may 
hold,  use  and  apply  the  proceeds  towards  the  payment  of  any  indebtedness,  obligation  or 
liability  of  the  undersigned  to  said  bank,  its  successors  or  assigns,  rendering  any  overplus 
to  the  undersigned.  In  the  event  of  the  suspension,  failure  or  insolvency  of  the  under- 
signed, or  anv  change  that  materially  reduces  the  ability  of  the  undersigned  to  pay  all 
claims  and  demands  against  the  undersigned  at  maturity,  any  and  all  direct  and  con- 
tingent obligations  and  indebtedness  of  the  undersigned  to  the  said  bank,  whether  evi- 
denced by  notes  or  otherwise,  shall  become  immediately  due;  and  in  any  such  event  said 
bank  is  authorized  by  the  undersigned  to  offset  and  apply  the  balance  to  the  credit  of  the 
undersigned  at  that  time  on  its  books  toward  the  payment  of  any  such  obligations  and 
indebtedness.  


240(1  PRACTICAL   BANKING. 


COLLATERAL  NOTE. 

New  York 19 

, with  interest  at per  cent,  per  annum, 


promise  to  pay  The  Twelfth  Ward  Bank,  or  order,  at  the  place  of  business  of  said 

Bank Dollars, 

for  value  received,  having  deposited  with  said  Bank  as  collateral  security 


with  the  right  on  the  part  of  The  Twelfth  Ward  Bank,  its  President  or  its  Cashier,  from 
time  to  time  to  demand  such  additional  collateral  security  as  said  Bank,  its  President  or  its 
Cashier  may  deem  sufficient;  ami  upon  failure  to  cjmply  with  any  such  demand  when 
made,  this  obligation  shall  forthwith  mature  and  become  due  and  payable  notwithstanding 
any  other  time  herein  specifically  mentioned.     And  upon  the  maturing  of  this  obligation, 

hereby  authorize  said  Bank,  its  President  or  its  Cashier,  to  sell  and  deliver  without 

any  advertisement  or  notice  to at  the  Board  of  Brokers, 

or  at  public  or  private  sale,  at  the  option  of  said  Bank,  its  President  or  its  Cashier,  the 
whole  or  any  part  of  such  securities  held  as  collateral,  with  the  right  on  the  part  of  said 
Bank  to  become  the  pui  chaser  thereof  at  such  sale  or  sales,  freed  and  discharged  from  any 

equity  of  redemption,  accounting  to 

for  the  surplus,  if  any,  and  in  case  of  deficiency promise  to  pay  to  said  Bank  the 

amount  thereof  on  the  day  of  such  sale,  with  legal  interest,  and  all  legal  costs  and  ex- 
penses connected  with  said  sale  or  sales;  and  it  is  hereby  understood  and  agreed  that  if 
recourse  is  had  to  the  collaterals,  any  excess  of  collaterals  upon  this  obligation  shall  be 

applicable  to  any  other  obligations  or  claims  held  by  said  Bank  against 

and  in  case  of  any  exchange  of  or  additions  to 

the  collaterals  above  named,  the  provisions  of  this  obligation  shall  extend  to  such  new  or 
additional  collaterals. 


COLLATERAL  NOTE. 
J Nkw  York 18 

after  date promise  to  pay  to  the  Gallatin  National 

Bank  of  the  City  of  New  York,  or  order,  at  the  banking  house  of  said  Bank,  in  funds  cur- 
rent at  the  New  York  clearing  house Dollars, 

with  interest  at  the  rate  of per  cent,  per  annum,  for  value  received,  having  de- 
posited with  said  Bank  as  collateral  security 


which         hereby  authorize  said  Bank  or  its  President  or  Cashier  to  sell,  without 

notice,  at  the  Board  of  Brokers,  or  at  public  or  private  sale,  at  the  option  of  said  Bank  or 
its  President  or  Cashier,  in  case  of  the  non-performance  of  this  promise,  applying  the  net 

proceeds  to  the  payment  of  this  note,  including  interest  and  accounting  to for 

the  surplus,  if  any.    In  case  of  deficiency promise  to  pay  to  said  Bank  the  amount 

thereof  forthwith  after  such  sale,  with  legal  interest;  and  it  is  hereby  agreed  and  under- 
stood that  if  recourse  is  had  to  the  collaterals,  any  excess  of  collaterals  upon  this  note 

shall  be  applicable  to  any  other  note  or  claim  held  by  said  Bank  against   and  in  case 

of  any  exchange  of  or  addition  to  the  collaterals  above  named,  the  provisions  of  this  note 
shall  extend  to  such  new  or  additional  collaterals.  The  margin  of  collaterals  on  this  note 
to  be  kept  at  not  less  than  twenty  per  cent.,  or  in  default  thereof  the  same  to  be  payable 
on  demand. 

//  //  a/so  ag7eed,  that  upon  any  sale  of  any  of  said  collaterals  said  Bank  may  become 
the  purchaser  thereof  and  hold  the  same  thereafter  in  their  own  right  absolutely  free 
from  any  claim  of  


COLLATERAL  NOTE. 

New  York 188. 

The  Following  Securities,  viz. :  


are  this  day  deposited  by  me  with  The  Twelfth  Ward  Bank  of  the  City  of  New  York,  to  be 
held  by  said  Bank,  its  successor  or  assigns,  as  collateral  security  for  any  and  all  checks, 
drafts,  notes,  endorsements  or  overdrafts  made,  or  discounts  obtained,  or  other  indebted- 
ness incurred,  by  nae,  my  legal  representatives  or  assigns  and  due  or  to  grow  due,  to 
said  Bank.  


USEFUL   FORMS.  240e 

AUTHORIZATION  FOR  LOAN. 
To  the  Tivclfth  Ward  Bank:  New  York  190.. 

Gentlemen — At  a  meeting  of  the  Trustees  of 

held  this  day,  the  toUowing  members  being  present  and  voting  in  the  afi&rmative: 


//  was  Resolvrd,  That be  duly  authorized  to 

make  application  for  a  loan  of Dollars. 

And  it  7vas  Further  Resolved,  That  said  authorization  shall  apply  to  any  or  all  renewals 
of  the  same,  and  any  further  loans  or  discounts  which  shall  be  made  for  the  benefit  of  the 
Church. 

[seal]  Secretary. 


PROMISSORY  NOTE. 

New  York 189. 


after  date. promise  to  pay  to  the 

Produce  Exchange  Trust  Company,  or  order,  at  its  office  in  the  City  of  New  York,  the  sum 

of Dollars. 

for  value  received,  in  United  States  gold  coin  of  or  equivalent  to  the  present  standard  of 
weight  and  fineness,  having  deposited  herewith,  and  pledged  as  collateral  security  to  the 
holder  hereof,  the  following  property,  viz.: 


with  authority  to  the  holder  hereof  to  sell  the  whole  of  said  property,  or  any  part  thereof 
or  any  substitutes  therefor,  or  any  additions  thereto,  at  any  Brokers'  Board,  in  the  City  of 
New  York,  or  at  public  or  private  .sale  in  said  city  or  elsewhere,  at  the  option  of  such 
holder,  on  the  non-performance  of  any  of  the  promises  herein  contained,  without  notice 
of  amount  claimed  to  be  due,  without  demand  of  payment,  without  advertisement  and 
without  notice  of  the  time  and  place  of  sale,  each  and  every  of  which  is  hereby  expressly 
waived. 

//  is  agreed,  that  in  case  of  depreciation  in  the  market  value  of  the  property  hereby 

pledged  fwhich  market  value  is  now  $ ")  or  which  may  hereafter  be  pledged  for 

this  loan,  a  payment  shall  be  made  on  account  of  this  loan  upon  the  demand  of  the  holder 

hereof,  so  that  the  said  market  value  shall  always  be  at  least per  cent,  more  than 

the  amount  unpaid  of  this  note,  and  that  the  holder  may  immediately  be  reimbursed  by 
selling  the  said  property  or  any  part  thereof.    In  case  the  net  proceeds  arising  from  any 

sale  hereunder  shall  be  less  than  the  amount  due  hereon promise  to  pay  to  the 

holder,  forthwith  after  said  sale,  the  amount  of  such  deficiency  with  legal  interest. 

It  is  further  agreed,  that  any  excess  in  the  value  of  said  collaterals,  or  surplus  from 
the  sale  thereof  beyond  the  amount  due  hereon,  shall  be  applicable  upon  any  other  note 

or  claim  held  by  the  holder  hereof,  against now  due  or  to  become  due,  or  that  may 

be  hereafter  contracted;  and  that,  if  no  other  note  or  claim  against is  so  held,  sur- 
plus, after  payment  of  this  note,  shall  be  returned  to or assigns. 

It  is  further  agreed, ihaiwpon  Rny  sa\c  by  virtue  hereof,  the  holder  hereof  may  pur- 
chase the  whole  or  any  part  of  such  property  discharged  from  any  right  of  redemption, 
which  is  hereby  expressly  released  to  the  holder  hereof,  who  shall  retain  a  claim  against 
the  maker  hereof  for  any  deficiency  arising  upon  such  sale. 

It  is  further  agreed,  that  any  moneys  or  property  at  any  time  in  the  possession  of  the 
Produce  Exchange  Trust  Company  belonging  to  any  of  the  parties  liable  hereon  to  said 
Company,  and  any  deposits,  balance  of  deposits,  or  other  sums  at  any  time  credited  by  or 
due  from  said  Company  to  any  of  said  parties,  may  at  all  times,  at  the  option  of  said  Com- 
pany, be  held  and  treated  as  collateral  security  for  the  payment  of  this  note  or  the 
indebtedness  evidenced  herebj',  whether  due  or  not  due.  and  said  Company  may  at  any 
time  at  its  option  set  off  the  amount  due  or  to  become  due  hereon  against  any  claim  of  any 
of  said  parties  against  said  Company,  other  than  for  said  avails  or  the  amount  loaned 
hereupon.  

Pay  to  the  order  of  Produce  Exchange  Trust  Company. 

And further  agree,   to  all  the  terms  and  conditions  of  the  within  note  and  hereby 

waive  demand,  protest  and  notice  of  protest  thereof,  and  notice  of  sale  and  advertisement 

of  collateral  securities  held  therefor,  and hereby  consent  to  and  ratify  all  changes 

and  substitutions  and  withdrawals  of  collateral  securities  held  for  said  note. 


240/  PRACTICAL   BANKING. 

PROMISSORY  NOTE. 

New  York 1899. 

In  Consideration  of  the  stationery  supplied  to  me  by  The  Twelfth  Ward  Bank 
as  a  depositor  in  said  Bank,  and  for  other  expenses  (except  special  messenger  service) 
which  the  said  Bank  may  incur  in  connection  with  my  account  in  said  Bank, 

/  Hereby  Agree  to  pay  to  The  Twelfth  Ward  Bank  one  dollar  and  fifty  cents  per  month 
from  the  date  hereof  in  cash,  or  the  said  Bank  may  charge  said  monthly  sum  to  my  ac- 
count. This  agreement  to  continue  until  my  account  in  said  Bank  shall  show  an  actual 
daily  average  balance  of  $200.00  for  a  period  of  three  consecutive  months. 


Witness: 


SPECIAL  POWER  OF  ATTORNEY  TO  TRANSACT  BANKING. 

CO-PARTNERSHIP— ALL    PARTNERS   TO   SIGN. 

Know  all  Men  bv  these  Presents,  That  we 


composing  the  firm  of 

of have  made,  constituted  and  appointed,  and  by  these  presents  do 

make,  constitute  and  appoint our  true  and  lawful  attorney  for  us 

and  in  our  said  firm  name,  place  and  stead  to  deposit  in  said  firm  name,  for  the  account 
and  credit  of  said  firm  in  The  National  Citizens  Bank,  of  the  City  of  New  York,  cash, 
bills,  notes,  drafts,  checks  and  other  written  obligations  for  the  payment  of  money,  to 
endotse,  in  said  firm  name,  any  and  all  such  bills,  notes,  drafts,  checks  and  other  written 
obligations  necessary  for  such  deposit,  and  to  sign  and  execute,  in  said  firm  name,  any  and 
all  checks,  drafts  and  other  written  obligations  necessary  to  withdraw  all  moneys  and 
funds  placed  to  the  credit  of  said  firm  in  said  bank. 

IAnd  also  for  our  account  to  borrow  money  from  the  said  bank,  and  to  make, 
execute,  sign,  seal,  endorse  and  deliver  to  the  said  bank,  for  us,  and  in  our  name, 
notes,  bonds,  or  other  instruments  in  writing  necessary  therefor,  and  as  col- 
lateral security  for  such  loans,  to  assign,  transfer  and  set  over  to  the  said  bank, 
stocks,  bonds,  warehouse  receipts  or  other  personal  property  whatsoever. 

It  being  understood  and  agreed  that  this  power  shall  stand  irrevoked  and  in  full  force 
until  notice  thereof  shall  be  given,  in  wi  iting,  by  our  legal  representatives  to  said  The 
National  Citizens  Bauk;  hereby  giving  and  granting  uulo  our  said  attorney  full  power 
and  authority  to  do  and  perforin  all  and  every  act  and  thing  whaisoever  requisite  and 
necessary  to  be  done  in  and  about  the  premises,  as  fully,  to  ail  intents  and  purpost>,  as  the 
said  firm  might  or  could  do  if  personally  present,  with  full  power  of  substitution  and 

revocation,  hereby  ratifying  and  confirming  all  that  said  attorney  or substitute 

shall  lawfully  do  or  cause  to  be  done  by  virtue  hereof. 

In  Witness  Whereof,  I  have  hereunto  set  my  hand  and  seal  the day 

of in  the  year  one  thousand  nine  hundred  and 

Sealed  and  delivered  in  the  presence  of 


State  of  New  York,  County  of  New  York,  ss: 

Be  It  Known,  That  on  the day  of one  thousand  nine  hundred 

and before  me  . . Notary  Public  in  and  for  the  State  of  New 

York,  duly  commissioned  and  sworn,  dwelling  in  the  County  of  New  York,  personally 

appeared 


composing  the  firm  of 

to  me  known  and  known  to  me  to  be  the  individuals  described  in,  and  who  executed  the 
within  I'owcr  of  Attorney,  and  acknowledged  to  me  that  they  executed  the  same. 

In  Testimony  Whereof,  I  have  hereunto  subset ibed  my  name,  and  affixed  my  seal  of 
oflSce,  the  day  and  year  last  above  written. 


USEFUL  FORMS.  240flr 

SPECIAL  POWER  OF  ATTORNEY  TO  TRANSACT  BANKING. 

INDIVIDUAL. 

Kno7u  all  Mnt  hv  these  Presents,  That  I 

of have  made,  constituted  and  appointed,  and  by  these  presents  do 

make,  constitute  and  appoint my  true  and  lawful  attorney 

for  me  and  in  my  name,  place  and  stead  to  deposit  in  my  name,  for  my  account  and  credit, 
in  The  National  Citizens  Bank  of  the  City  of  New  Yotk,  cash,  bills,  notes,  drafts,  checks 
and  other  written  obligations  for  the  payment  of  money,  to  endorse,  in  my  name,  any  and 
all  such  bills,  notes,  drafts,  checks  and  other  written  obligations  necessary  for  such  de- 
posit, and  to  sign  and  execute,  in  my  name,  any  and  all  checks,  drafts  and  other  written 
obligations  necessary  to  withdraw  all  moneys  and  funds  placed  to  my  credit  in  said  Bank. 

I  And  also  for  my  account  to  borrow  money  from  the  said  Bank,  and  to  make, 
execute,  s-ign,  seal,  endorse  and  deliver  to  said  Bank,  for  me,  and  in  my  name, 
notes,  bonds,  or  other  instruments  in  writing  necessary  therefor,  and  as  col- 
lateral security  for  such  loans,  to  assign,  transfer  and  set  over  to  the  said  Bank, 
stocks,  bonds,  warehouse  receipts  or  other  personal  property  whatsoever. 
It  being  understood  and  agreed  that  this  power  shall  stand  irrevoked  and  in  full  force 
until  notice  thereof  shall  be  given,  in  writing,  by  my  legal  representatives  to  said  The 
National  Citizens  Bank;  hereby  gi\ing  and  granting  unto  my  said  attorney  full  power 
and  authority  to  do  and  perform  all  and  every  act  and  thing  whatsoever  requisite  and  nec- 
essary to  be  done  in  and  about  the  premises,  as  fully,  to  all  intents  and  purposes,  as  I 
might  or  could  do  if  personally  present,  with  full  power  of  substitution  and  revocation, 

hereby  ratifying  and  confirming  all  that  my  said  attorney  or  . .    substitute 

shall  lawfully  do  or  cause  to  be  done  by  virtue  hereof. 

In  Witness  Whereof,  I  have  hereunto  set  my  hand  and  seal  the day 

of in  the  year  one  thousand  nine  hundred  and 

Sealed  and  delivered  in  the  presence  of 


State  of  New  York,  County  of  New  York,  ss: 

Be  it  Known,  That  on  the day  of one  thousand  nine  hundred 

and before  me a  Notan,'  public  in  and  for  the  State  of  New 

York,  duly  commissioned  and  sworn,  dwelling  in  the  County  of  New  York,  personally 

appeared 

to  me  known,  and  known  to  me  to  be  the  individual  described  in,  and  who  executed  the 
within  Power  of  Attorney,  and  acknowledged  to  me  that  he  executed  the  same. 

In  Testimony  Whereof,  I  have  hereunto  subscribed  my  name,  and  affixed  my  seal  of 
office,  the  day  and  year  last  above  written. 


POWER  OF  ATTORNEY. 

TRANSFER  OF  STOCK — IRREVOCABLE. 

Know  all  Men  by  these  Presents,  That 

for  value  received,  have  bargained,  sold,  assigned  and  transferred,  and  by  these  presents 

do  bargain,  sell,  assign  and  transfer  unto 

standing  in name,  on  the  books  of  the 

and  do  hereby  constitute  and  appoint 

true  and  lawful  Attorney,  irrevocable for  and  in name  and  stead 

to use,  to  sell,  assign,  transfer  and  set  over  all  or  any  part  of  the  said  stock,  and 

for  that  purpose  to  make  and  execute  all  necessary  acts  of  Assignment  and  Transfer,  and 
one  or  more  persons  to  substitute  with  like  full  power,  hereby  ratifying  and  confirming 

all  that said  Attorney,  .or  substitute  or  substitutes  shall  lawfully  do  by  virtue 

hereof. 

In  Witness  Whereof. have  hereunto  set hand   .and  seal,  .the 

day  of one  thousand  eight  hundred  and  ninety 

Sealed  and  delivered  in  the  presence  of  


240/t  PRACTICAL  BANKING. 

POWER  OK  ATTORNEY. 

For  Value  Received hereby  sell,  assign  and  transfer  unto 


shares  of  the  within  mentioned  stock,  and do  hereby  constitute 

and  appoint Attorney,  to  transfer  the  same  on  the  books  of  the  Bank. 

Witness hand  and  seal  this day  of  December,  1901. 

Witness:  


TlIK  RUNNER   AND   POKTK2.  *      241 


CHATTKU  XIX. 


THE  KLNNEK  AND  PORTER. 


He  is  a  youu.i;  man.  aud  occupies  the  lowest  position  in  the  bank. 
He  Is  simply  a  messenger  to  collect  drafts  aud  notes.  Boys  are  hired 
who  are  eighteen  to  twenty  years  old.  are  paid  a  small  salary,  aud  are 
quickly  trained  to  go  around  the  city  with  notes  and  drafts  for  col- 
lectiou.  Their  instruct  ious  are  simple  aud  definite.  They  must  not 
t;:ke  anything  Ix'sidc  a  certified  check  or  good  money,  unless  in- 
stiucted  by  the  note  teller  to  do  otherwise.  He  has  charge  of  the 
runners,  who  are  promoted  whenever  vacancies  occur.  Many  bank 
clerks  and  not  a  few  cashiers  and  presidents  began  as  runners. 

In  Loudon  a  bank  messenger  or  runner  is  called  au  out  teller,  (tr 
collecting  clerk.  His  duties  are  quite  the  same,  though  his  methods 
differ  in  some  respects.  When  he  starts  out  from  the  bank,  on  what 
is  there  termed  his  "walk."  he  leaves  behind  him  a  record  of  the 
route  he  is  to  travel,  and  of  the  collecting,  notifying,  and  presenting 
ho  is  to  do.  in  a  book  called  the  Walk  Book.  In  this  way  the  bank  is 
kept  informed  of  the  whereabouts  of  their  absent  messenger,  a  bit  of 
information  that  must  be  highly  appreciated.  In  our  banks  and  offices 
the  inqiiiry.  "Where  is  that  messenger?"  has  become  as  familiar  as  the 
question.  "Where  are  the  police?"  The  London  collecting  clerk,  or  out 
teller,  invariably  has  his  wallet  strapped  to  his  body  with  chain  and 
belt,  a  practice  which  has  in  some  cases  been  copied  here,  and  ought 
to  be  here  more  widely  in  vogue.  The  drafts  which  he  takes  upop 
his  route  for  presentation,  for  acceptance,  are  always  left  with  tin- 
drawees,  who  have  twenty-four  hoiu's  in  which  to  return  them  to  the 
bank. 

The  porter  is  the  janitor.  His  duty  in  some  banks  is  to  appear 
when  the  watchman  leaves  at  six  o'clock  in  the  morning.  IIi'  puts^ 
the  bank  in  order,  aud  stays  until  the  clerks  come,  then  takes  all  tlic 
books  out  of  the  vault  and  puts  them  in  their  proper  places.  It  is  now 
probably  about  half- past  nine.  At  night,  after  the  clerks  go  away, 
he  puts  the  books  back,  locks  the  vault  and  stays  in  the  bank  until 
the  watchman  appears  at  eight  o'clock.  After  the  clerks  are  gnue.  tlie 
janitor,  porter  or  watchman  is  always  present.  In  some  b.niks  the 
porter  is  a  special  messenger  during  the  day.    After  doing  liis   work 


242  PRACTICAL  BANKING. 

in  the  moruiug  he  retires,  and,  having  arranged  his  dress,  appears 
again,  and  is  thus  engaged  during  the  day.  When  thus  employed,  if 
a  banlx  has  any  coin  to  transport,  he  generally  attends  to  it. 

In  some  banlvs  the  duties  of  the  porter  are  quite  different  with 
regard  to  lodging  the  safe,  which  is  done  by  one  of  tlie  clerlis.  Some 
banks  also  have  two  watchmen.  More  recently,  the  electrical  Avatch- 
nian  has  appeared.  He  mounts  guard  and  is  connected  with  a  central 
ofLce  in  such  a  manner  that  it  is  quite  impossible  for  any  one  to  do 
anything  with  the  safe  without  giving  an  alarm  to  those  in  the  central 
oflice,  who  rush  to  the  scene. 


DEALINGS  IN   EXCHANGE,  243 


CHAPTER    XX. 


DEALINGS     IN     EXCHANGE. 


A  bill  of  exchange  is  a  familiar  iustrument,  for  it  is  one  of  the 
oldest  used  in  commerce.  It  may  be  defined  as  an  order  by  a  person 
on  another  living  in  a  different  place,  directing  him  to  pay  a  sum  of 
money  to  a  third  person.  Worcester's  definition  of  exchange  is:  "The 
method  of  adjusting  accounts  or  paying  debts,  when  the  debtor  and 
creditor  are  distant  from  each  other,  by  means  of  an  order  or  draft 
called  a  bill  of  exchange,  so  as  to  avoid  the  transmission  of  either 
money  or  goods."  The  person  who  writes  the  bill  is  called  the  drawer, 
the  person  to  whom  it  is  addressed  is  called  the  drawee,  and  the  person 
who  is  to  receive  the  money  is  called  the  payee.  When  the  drawee 
has  accepted  the  bill  he  is  called  the  acceptor.  This  is  done  by  writing 
his  name  and  the  word  "accepted"  across  the  face  of  the  bill,  and 
also  the  date  if  the  bill  is  payable  after  sight.  In  accepting  a  bill,  the 
acceptor  cannot  vary  the  terms  of  it;  for  example,  if  it  be  drawn  on 
a  person  living  in  New  York,  and  payable  there,  he  cannot  accept  it 
payable  in  Boston.    He  must  follow  the  direction  in  the  bill. 

The  phrase  "bill  of  exchange"  is  often  abbreviated  and  called 
simply  exchange.  In  newspaper  quotations  the  one  word  is  generally 
used.  Thus  "exchange  on  New  Orleans,"  or  "exchange  on  London," 
is  quoted  at  a  certain  figure.  The  term  is  somewhat  ambiguous,  how- 
ever, sometimes  meaning  the  rate  of  exchange  and  sometimes  the 
instrument.  But  the  term  is  employed  in  such  relations  to  other  words 
that  persons  have  no  difficulty  in  understanding  what  is  meant. 

What  is  the  use  of  these  instruments,  and  what  purpose  do  they 
serveV  Suppose  that  Jones,  who  lives  in  New  York,  owes  Williams, 
of  St.  Louis,  $10,000.  Exchange  on  New  York  being  almost  always 
at  a  premium,  Jones  will  either  send  his  certified  check  on  his  New 
Ycrk  bank  for  the  amount  he  owes  in  St.  Louis,  or  he  will  deposit  the 
mcney  in  his  New  York  bank,  and  take  the  bank's  certificate  of  de- 
posit for  the  amount,  payable  to  the  order  of  his  debtor,  Williams,  in 
St.  Louis.  Williams  will  have  no  difficulty  in  negotiating  this  certified 
check,  or  the  certificate  of  the  New  York  bank,  because,  as  already 
stated,  New  York  exchange  Is  almost  everywhere  acceptable.  But  if, 
on  the  other  hand,  Williams,  of  St.  Louis,  desires  to  pay  .S:.0,000  to 


244  PRACTICAL   BANKINU. 

Joues,  of  New  York,  bo  will  either  draw  a  draft  on  some  party  iu  New 
York  who  is  indebted  to  him,  and  send  the  draft  to  Jones,  or  he  will 
go  to  his  bank  in  St.  Louis  and  buy,  at  the  current  rate,  exchange  on 
New  York.  i.  e.,  the  bank's  draft  on  its  New  York  correspondent,  pay- 
able to  the  order  of  Jones.  If  bills  of  exchange  did  not  exist,  Williams 
would  be  obliged  to  ship  the  money  from  St.  Louis  to  New  York. 
This  would  cost  expressage,  besides  the  danger  of  loss  by  robbery 
or  other  accident,  and  the  loss  of  interest  during  the  period  of  trans- 
mission. 

Many  bills  are  drawn  payable  at  sight,  and  in  certain  States  these 
must  be  paid  when  presented.  In  other  States,  however,  the  drawees 
are  entitled  on  sight  drafts  to  three  days'  grace.  To  render  bills  pay- 
able at  once  when  presented  the  words  "at  sight"  are  omitted,  and 
the  drafts  are  then  payable  on  demand. 

The  business  of  buying  and  selling  exchange  is  a  very  large  one, 
especially  that  of  foreign  exchange.  The  buying  of  exchange  comes 
alKiut  in  this  way.  Suppose  Williams,  of  St.  Louis,  having  sold  a  bill 
of  goods  to  Jones,  of  New  York,  has  drawn  a  bill  of  exchange  on 
Jones  for  the  amount  payable  to  his  (Williams')  own  order.  Williams 
wants  the  money  at  once,  perhaps  to  pay  for  purchases.  He  goes  to 
a  bank  and  asks  the  cashier  if  he  will  buy  the  bill.  The  cashier  looks 
at  it;  he  knows  that  the  drawee  is  perfectly  good,  and  that  iu  the 
event  of  his  failure  to  pay  he  can  hold  the  drawer  responsible.  He 
buys  the  bill  and  pays  Williams  the  money  therefor.  Transactions 
of  this  kind  are  occurring  daily  among  the  banks.  Enormous  quan- 
tities of  cotton,  wool,  breadstuffs,  provisions  of  all  kinds  and  other 
ccunuodities  are  bought  and  paid  for  by  means  of  bills  of  exchange. 
The  bank  charges  the  agreed  rate  of  exchange  and  interest  to  reim- 
burse itself  for  the  use  of  the  money  until  the  draft  or  bill  can  be 
collected.  The  bill  is  then  forwarded  for  collection  to  the  correspond- 
ent of  the  bank  in  the  place  where  the  draft  is  payable. 

It  is  a  very  common  thing  for  the  western  merchant  to  make  ad- 
vances to  the  farmer  or  planter  to  enable  him  to  grow  his  crops.  He 
may  advance  him  cash  or  furnish  him  with  the  necessaries  of  life, 
usually  iu  either  case  taking  as  security  a  chattel  mortgage  on  his  stock 
and  a  lien  upon  the  growing  crops.  Suppose  the  product  to  be  cotton. 
\^  hen  gathered  the  cotton  is  shipped  to  the  merchant,  who  pi'oceeds 
to  sell  it  for  account  of  the  planter,  and  to  reimburse  himself  for  the 
advances  made.  When  sold  the  cotton  is  shipped  East,  and  the  trans- 
portation company's  bill  of  lading  for  so  many  liales  is  attached  to  the 
merchant's  draft  on  the  consignee  for  the  value  of  the  cotton;  or  the 
m(>rchant  may  forward  the  goods  to  a  commission  merchant  East  for 
sale.  He  then  attaches  his  draft  for  the  .'ipproxiniate  value  of  the 
goods,  and  goes  to  his  local  banker  and  sells  his  bill  of  exchange  with 
documents,  the  latter  being  endorsed  so  as  to  convey  the  title  to  the 
cotton  to  the  owner  of  the  draft. 


DEALINGS   IS  EXCHANGE.  245 

Mt'i-chants  iu  St.  I.ouis,  Chif-ago  and  the  other  Westorn  and  South- 
ern points  arc  constantly  buying  merchandise,  jjroceries.  (h-y  goods, 
etc..  from  merchants  in  \ew  York  and  the  East.  For  this  merchandise 
flic  West  and  Soutli  is  indel)ted  to  New  York  and  the  East.  On  the 
other  hand,  the  products  of  the  West  and  South,  cotton,  grain,  beef, 
pork.  etc..  are  constantly  being  shipped  North  and  East. 

The  transactions  in  cotton,  for  example,  exceed  three  hundred 
millions  a  year,  a  large  portion  of  which  is  consigned  to  houses  in  the 
North,  who  make  advances  on  the  security  of  these  instruments. 
Formerly  the  method  of  doing  Itusiness  was  different.  Then  the  banks 
in  New  York  and  other  jdaccs  would  not  advance  on  bills  of  lading 
and  warehouse  rece-pts.  aii<l  if  the  broker  or  merchant  did  so  lie  had 
the  money  from  v,iiicl»  tlic  advance  was  made.  In  those  days  cotton 
was  sold  on  sixty  days'  time.  As  soon  as  it  was  purchased  in  the 
North  the  planter  drew  on  the  receiver,  and  after  the  bill  was  accepted 
the  local  bank  cashed  the  paper.  But  now  the  Southern  banks  have 
not  enough  money  to  do  this  business,  and  cannot  take  the  paper 
when  ottered,  and  consequently  the  planter  consigns  the  cotton  and 
draws  for  three-quarters  or  more,  of  its  value.  By  the  present  method, 
it  may  be  added,  the  receivers  must  have  more  capital  than  formerly, 
as  then  they  had  two  months  in  which  to  sell  and  get  money  before 
their  acceptances  l>ecame  due. 

Several  years  ago  a  quantity  of  wheat  was  sent  from  Chicago  on  a 
bill  of  lading  to  order.  The  bank  in  that  city  advanced  on  it,  and  the 
grain  was  forwarded,  under  the  direction  of  the  bank,  to  a  certain 
storehouse,  with  instructions  to  keep  it  until  the  drafts  that  repre- 
sented the  advance  AA-ere  paid.  As  these  had  several  months  to  run, 
the  storekeeper,  who  was  a  speculator,  thought  it  would  be  a  fine  thing 
to  use  the  grain,  intending  to  put  other  grain,  similar  in  quality  and 
<iujintity,  in  its  place  before  the  drafts  matured.  Accordingly,  he  for- 
warded it  to  a  house  in  New  Y'ork  for  sale.  The  consignee  was  a  care- 
ful, cautious  man.  He  examined  the  bill  of  lading,  found  that  it  was 
genuine,  examined  the  wheat  also,  and  found  that  it  answered  the 
description  required,  and  made  a  large  advance  at  the  request  of  the 
consignor  on  the  same.  The  grain  was  sold,  and  the  balance,  after 
deducting  the  charges,  etc.,  was  paid  over  to  the  storekeeper. 

It  is  needless  to  add  that  his  speculation  turned  out  disastrou-sly, 
and  consequently  he  could  not  replace  the  wheat.  Then  the  bank  in 
Chicago  found  out  that  their  wheat  was  not  where  they  supposed  it  to 
be.  They  traced  the  wheat  into  the  hands  of  the  consignee  of  New 
York,  and  though  he  had  obtained  it  in  a  perfectly  honest  way,  j^et, 
inasmuch  as  the  storekeeper  had  no  title  to  it,  he  could  convey  no  title 
to  the  consignee,  and  consequently  the  latter  was  held  liable.  This 
doctrine  has  made  the  business  of  advancing  money  on  the  security 
of  l>ills  of  lading  more  perilous  than  is  agreeabe  to  bankers  and  com- 
mission merchants,  and  the  question  arises  whether  it  is  not  possible 


246  PRACTICAL  BANKING. 

to  grant  greater  protection  to  them  than  they  now  receive.  Ought  not 
couimon  carriers  to  be  held  responsible  for  the  acts  of  their  agents 
in  issuing  bills  of  lading?  A  bill  embodying  this  obligation  was  in- 
troduced into  Congress.  It  substantially  declares  that  bills  of  lading, 
issued  by  an  agent  authorized  to  issue  such  instruments,  should  be 
conclusive  evidence  against  the  carrier  in  the  hands  of  a  bona  fide 
holder  for  value,  that  the  freight  was  actually  received  as  in  the  bill 
of  lading  stated,  and  that  the  agent  issuing  the  same  had  full  authority 
to  do  so.  To  prevent  this  rule  from  becoming  too  severe  in  its  prac- 
tical application  as  against  the  carriers,  the  proposed  law  contained  a 
further  provision  that  the  carrier  should  not  be  responsible  under  the 
provisions  of  the  same  on  any  bill  of  lading  on  which  he  stamped 
the  words  "not  negotiable,"  nor  for  any  statement  of  fact  in  such  a 
bill  of  lading  caused  wholly  by  the  fraud  of  the  shipper  of  the  mer- 
chandise therein  named,  the  holder  of  the  bill,  or  the  person  under 
whom  he  claimed. 

It  was  hoped  that  this  measure  would  meet  the  necessities  of  the 
case,  for  while  it  is  true  that  much  may  be  said  upon  the  propriety 
of  making  principals  responsible  for  the  acts  of  their  agents,  it  is 
also  true  that  that  doctrine  may  be  carried  to  such  an  extent  as  to 
work  positive  injustice.  To  make  carriers  responsible  to  an  unlimited 
amount  upon  bills  of  lading  issued  at  remote  and  unimportant  sta- 
tions by  agents,  of  whose  actions,  owing  to  the  circumstances,  carriers 
have  but  little  actual  knowledge  or  control,  is  perhaps  to  increase  the 
risks  of  the  transportation  business  beyond  its  legitimate  limits. 

The  practical  effect  of  the  bill  would  be,  if  enacted,  that  railroad 
companies  would  issue  to  their  agents  generally  non-negotiable  bills  of 
lading,  which  could  not  be  made  negotiable  by  any  erasure  or  alter- 
ation; they  would  provide  their  trusted  agents  at  the  largest  receiving 
depots  with  negotiable  bills  of  lading,  which  would  be  issued  as  re- 
quired. 

There  is  another  kind  of  bill  which  may  be  described.  A  firm  in 
New  York  sends  an  agent  to  Chicago  to  buy  grain.  Mr.  Snooks,  the 
agent,  buys  a  considerable  quantity,  and  in  order  to  make  payment 
draws  on  his  principal  or  consignor  for  the  full  amount  of  his  en- 
gagement. He  takes  this  bill  to  a  bank  and  asks  them  to  advance  the 
money,  as  in  the  case  just  mentioned.  The  bank,  if  having  funds,  is 
usf.ally  willing  to  grant  the  advance  requested. 

The  bank  forwards  the  draft  to  its  corresponding  bank  in  New 
York,  which  presents  it  to  the  drawee  in  due  time.  He  accepts  it, 
and  pays  according  to  its  tenor.  In  this  case,  as  the  wheat  is  pur- 
chased for  the  consignee,  of  course  he  is  liable  for  the  amount,  and 
the  bill  is  drawn  for  the  full  sum  that  is  due  for  it. 

When  a  draft  is  offered  for  sale,  how  much  will  a  bank  pay  for 
itV  To  answer  this  question  clearly  a  brief  explanation  Is  necessary. 
If  the  business  men  in  New  York  are  selling  about  as  many  goods 


DEALINGS  IN  EXCHANGE.  247 

to  the  merchants  in  St.  Louis  as  they,  on  the  other  hand,  are  selling 
to  New  Yorlvers,  then  the  bills  of  exchange  drawn  in  both  cities  Avill 
be  at  par— in  otlier  words,  tliey  will  be  transferred  from  one  person 
to  another  for  just  the  amount  expressed  on  their  face.  There  may  be 
a  very  slight  difference,  enough  to  pay  the  l)anks  for  the  trouble  of 
bujing  and  selling  them;  but,  for  the  moment,  we  will  leave  that 
fact  out  of  sight.  But  now,  suppose  that  the  merchants  of  St.  Louis 
are  selling  the  New  Yorkers  three  times  as  many  goods  as  the  former 
are  buying  in  New  York,  then  the  merchants  of  New  York  would  owe 
those  of  St.  Louis  three  times  as  much  money.  The  reader  will  perceive 
that  there  will  be  three  times  as  many  bills  drawn  by  the  merchants 
of  St.  Louis  as  by  the  New  Yorkers,  and  if  all  the  St.  Louis  merchants 
should  wish  to  sell  their  bills  they  could  not  get  par  for  them,  because 
the  buyers  could  not  sell  them  at  a  profit,  for  the  simple  reason  that 
there  would  be  occasion  for  using  only  one-third  of  them  in  settling 
the  debts  due  by  the  St.  Louis  merchants  to  the  New  Yorkers.  On  the 
olher  hand,  if  all  the  New  Yorkers  should  desire  to  sell  their  bills 
they  could  get  more  than  par  for  them,  because  the  entire  amount 
would  settle  only  one-third  of  their  indebtedness  to  the  St.  Louis  mer- 
chants. The  bills,  therefore,  which  the  New  York  merchants  would 
draw  on  those  in  St.  Louis  would  command  a  premium,  while  the  bills 
drawn  by  the  St.  Louis  merchants  on  the  New  York  one  would  be  at 
a  discount.  It  may  be  added  here,  in  passing,  that  the  bills  drawn  by 
the  New  York  merchants  on  those  in  St.  Louis  would  be  called  St. 
Louis  exchange,  and  tlie  bills  drawn  by  the  St.  Louis  merchants  on 
those  in  New  York,  New  York  exchange.  When  the  New  York  mer- 
chants cannot  get  St.  Louis  exchange  at  par,  but  must  pay  a  premium 
therefor,  the  rate  of  exchange  as  between  the  two  cities  is  said  to  be 
against  New  Y'^ork;  if  the  St.  Louis  merchants  should  owe  a  balance  to 
these  in  New  York,  then  they  would  be  obliged  to  pay  a  premium  to 
get  New  Y'ork  exchange  with  which  to  settle  their  indebtedness,  and 
the  rate  of  exchange  would  be  in  favor  of  New  York.  In  other  words, 
the  rate  of  exchange  is  always  against  the  place  that  owes  the  most 
money,  and  in  favor  of  the  place  that  owes  the  least.  But  the  rate  of 
exchange  does  not  exceed  the  cost  of  transporting  specie,  and  the  cost 
of  doing  this  between  many  places  is  small;  for  this  reason  the  rate  of 
exchange  between  Boston  and  New  York  is  very  little.  Although  a 
great  many  bills  are  drawn  on  these  two  cities,  yet  the  rate  is  very 
loAV,  because  they  are  so  near  together,  and  the  modes  of  communi- 
cation are  so  perfect  that  money  may  be  readily  sent  from  one  city  to 
the  other  to  discharge  any  indebtedness  which  may  exist  between 
them  which  cannot  be  easily  settled  with  the  medium  of  bills  of  ex- 
change. Further  on  we  liave  given  quotations  of  bills  of  exchange 
drawn  on  New  York  by  other  places.  It  will  be  seen  that  the  rate  is 
only  five  cents  on  .?1,000  in  Boston— a  sum  too  insignificant  to  be  con- 
sidered. But  between  New  York  and  other  places  farther  away  the 
rate  is  higher. 


248  PRACTICAL  BANKING. 

One  tiling  further  ought  to  be  said  in  this  connection.  At  certain 
seasons  of  the  year  a  hirge  amount  of  grain  is  shipped  from  the  West 
to  the  East,  also  pork,  beef,  lard,  and  other  provisions;  enormous 
quantities  of  cotton  are  shipped  from  the  South,  too,  and  many  other 
articles  which  need  not  be  mentioned.  At  the  same  time.  Western 
ultrchants  are  making  large  purchases  in  the  East,  New  York,  Phila- 
delphia, Boston,  and  elsewhere.  But  the  purchases  made  in  the  East 
art  not  so  heavy  as  those  made  by  the  Eastern  men  of  the  West. 
The  consequence  is,  there  are  not  enough  bills  of  exchange  made  in  the 
East  to  pay  all  of  the  indebtedness  to  the  West;  in  other  words,  the 
rate  of  exchange  during  those  seasons  of  the  year  is  pretty  steadily 
against  the  Eastern  cities.  When  the  balance  becomes  large  and  the 
rate  of  exchange  considerable,  it  is  al)solutely  necessary  to  remit  cur- 
rency to  the  West  to  restore  the  balance  of  trade.  There  is  no  other 
way  of  restoring  it.  Years  ago,  when  money  was  less  plentiful  in  the 
\^'est  tlian  it  is  at  the  present  time,  there  was  a  more  urgent  need  of 
transmitting  money  to  effect  these  settlements.  Even  now,  large 
quantities  go  at  certain  seasons  of  the  year. 

The  banks  buy  bills  of  exchange  in  order  to  sell  them  again;  this 
is  a  part  of  their  regular  business.  They  buy  at  one  rate  and  sell  at 
a  higher  rate.  When  the  exchange  is  said  to  be  at  par  between  two 
cities  it  is  not  strictly  so,  inasmuch  as  a  bank  will  not  give  quite  as 
much  for  a  bill  of  exchange  as  it  asks  for  one  when  selling  it.  Of 
course,  if  it  l)ought  and  sold  at  the  same  price  no  profit  would  be 
made  in  the  business,  and  there  would  be  no  reason  for  undertaking 
it;  hence,  the  buying  and  selling  rate  is  never  the  same.  Thus,  in  an 
ordinary  newspaper  report  we  find  the  following,  which  is  extracted 
from  the  New  York  .Journal  of  Commerce  of  August  1st; 

The  following  are  the  rates  of  exchange  on  New  Y'ork : 

Savannah,  buying  %;  selling.  14  premium. 

Charleston,  buying  part^/^s:  selling  3-16@i^  premium. 

New  Orleans  commercial,  $1.50  per  Sgl.OOO  premium;  bank,  $2.50 
per  $1,000  premium. 

St.  Louis.  50c  per  $1,000  premium. 

Chicago,  75c  per  $1,000  premium. 

Boston,  parr?75c  per  $1,000  discount. 

When  a  Charleston  bank,  for  example,  buys  exchange  on  New 
York,  it  expects  to  sell  it  again  to  persons  who  have  payments  to 
make  in  the  latter  city.  It  does  not  sell  the  same  bills  that  it  buys; 
it  could  do  so,  however,  if  any  persons  desired  them.  Wliat  the  l)ank 
actually  does  is  to  forward  the  bills  purchased  to  the  bank  with 
v/liich  it  corresponds  in  New  York  for  collection;  that  bank  presents 
tliem  to  the  drawee  at  the  proper  time  and  they  are  paid,  and  the 
amount  is  credited  to  the  Charleston  Bank.  When  a  man  enters  the 
Charleston  Bank  desirous  of  buying  a  bill  of  exchange  on  New  York, 
it  simply  draws  a  bill  on  its  corresponding  bank  in  that  city  and  sells 


DEALINGS   IN  EXCHANGE.  249 

it  to  tho  party  doslriiig  the  same,  charging  him  therefor  whatever  the 
pievailiug  rate  may  be  at  that  time.  Just  now,  as  will  be  seen  from 
the  above  quotation  from  the  newspaper,  the  rate  is  one-quarter  of 
one  per  cent 

Banks  do  not  always  charge  their  customers  for  a  bill  of  exchange, 
either  when  selling  or  collecting  it.  The  custom,  however,  of  charging 
geuei'ally  prevails  among  banks;  nevertheless,  the  fact  that  excep- 
tions are  sometimes  made  is  worth  noting.  In  the  exceptional  cases 
the  dealer's  account  may  be  a  very  protitable  one,  and  this  favor  is 
shown  to  him  as  a  kind  of  reward  or  gratuity  or  permium  to  malve 
hira  feel  better  satisfied  with  the  bank.  But  a  gratuity  of  this  kind 
granted  to  a  dealer  is  rather  an  outside  matter,  and  does  not  pertain 
strictly  to  the  banking  l)usiness. 

It  may  be  stated  in  this  connection  that  some  depositors,  instead  of 
going  to  their  bank  and  buying  a  bill  of  exchange  when  they  wish  to 
pay  a  debt  due  in  another  city,  send  their  check  to  the  person  whom 
(hey  owe;  he  receives  it  and  deposits  it  in  his  bank  which  afterwards 
sends  it  for  collection  to  the  bank  on  which  it  is  drawn.  It  will  be 
seen  that  the  depositor  by  doing  this  cuts  off  his  bank  from  selling 
him  a  bill  of  exchange,  and  his  real  object  of  doing  this  is  to  save 
money  by  the  operation.  This  has  become  a  subject  of  considerable 
complaint  among  bankers.  The  question  has  been  raised  whether 
some  method  cannot  be  devised  for  collecting  these  checks,  and  there- 
by effecting  a  considerable  saving  among  all  the  parties  concerned. 
In  that  part  of  this  work  relating  to  the  Clearing-house,  a  chapter  will 
be  found  pertaining  to  this  subject. 

In  regard  to  foreign  bills,  what  we  have  already  said  applies  in 
most  respects  to  them.  The  rate  of  exchange  does  not  exceed  the 
cost  of  shipping  gold  from  the  debtor  to  the  creditor.  As  between 
Great  Britain  and  our  own  country  this  cost  does  not  exceed  two 
cents  to  the  pound  sterling. 

There  are  occasions  though  when  the  exchanges  sink  and  rise  much 
belOAV  the  specie  point,  which  is  not  accounted  for  by  the  single  fact 
of  a  balance  of  indebtedness,  eitlier  for  or  against  a  given  country. 
Such  an  occasion  occurred  early  in  1861,  wlien  war  was  impending 
between  the  North  and  South.  Fluctuations  in  the  American  rates 
of  exchange  extended  far  below  the  specie  point.  The  balance  of  trade 
was  in  favor  of  "the  United  States,  and  a  large  sum  was  due  from 
Great  Britain.  Yet,  exporters  sacrificed  three  or  four  per  cent,  on  their 
bills  in  order  to  get  their  money  immediately.  The  exporter  had  two 
courses  open  to  him— either  to  sell  his  bills  for  what  they  would 
fetch,  or  to  transmit  them  to  Europe  with  instructions  to  his  corre- 
spondents to  demand  payment  and  remit  the  amount  in  bullion.  The 
former  course  was  pursued,  consequently  the  bills  were  sold  at  a 
large  sacrifice. 

Tho  items  determining  tlie  question  whether  to  send  specie  or  buy 
a  bill  of  exchange  are  the  following:    Cost  of  sending  specie,  insurance 

ir 


250  PRACTICAL  BANKING. 

thereon,  and  the  loss  of  interest  on  the  specie  during  shipment  from 
one  country  to  the  other. 

Suppose  that  Jones  owes  a  bill  in  London;  he  goes  to  a  house  in 
Wall  street  which  deals  in  foreign  bills.  The  par  of  exchange  between 
the  two  countries  is  §4.86  Gi^-lOO;  that  is  the  legal  value  here  of  a 
pound  sterling.  The  question  in  Jones'  mind  when  he  goes  into  this 
house  is,  whether  he  shall  buy  a  bill  and  send  that  to  London  in 
discharge  of  his  debt,  or  whether  he  shall  transmit  specie  for  the  same 
purpose.  Of  course,  he  will  do  the  thing  which  is  cheapest.  Remem- 
bering that  the  par  of  exchange  between  the  two  countries  is 
$-1.8G  G5-100,  and  that  the  cost  of  shipment  is  two  cents  in  the  pound, 
if  he  can  buy  a  bill  at  less  than  .^4.88  G.5-100  of  course  it  would  be 
cheaper  for  him  to  buy  the  bill  than  to  send  the  specie.  On  the  other 
hand,  if  he  were  obliged  to  pay  more  than  $4.88  05-100  for  the  bill, 
then  it  would  be  cheaper  to  send  the  specie. 

Suppose  an  Englishman  has  a  debtor  in  New  York  who  owes  him 
£10,000,  payable  in  that  city,  shall  he  send  over  there  and  get  the 
money  and  import  it  into  his  own  country,  or  shall  he  draw  on  his 
debtor  for  the  amount  and  sell  the  bill?  Remembering  that  the  par  of 
exchange  is  $4.86  65-100,  and  that  it  will  cost  him  two  cents  in  the 
pound  to  transport  his  specie,  it  is  clear  that  any  sum  which  he  can 
get  for  his  debt  exceeding  .'^4.84  65-100  is  a  saving  on  the  importation  of 
gold.  On  the  other  hand,  if  he  cannot  sell  the  bill  for  $4.84  65-100,  but 
only  for  a  sum  considerably  less  than  that  figure,  his  more  profitable 
course  is  to  impoi't  specie. 

When  bills  are  payable  on  time,  say  30,  60  or  90  days,  they  com- 
mand a  lower  price  than  when  they  are  payable  at  sight.  The  reason 
is,  the  buyer  pays  cash;  he  sends  the  bill  to  Great  Britain  to  pay  his 
debt,  but  it  is  not  paid,  say,  for  60  days,  and  as  he  is  out  of  the  money 
during  the  interval  the  bill  is  bought  at  a  reduced  rate. 

The  sum  paid  for  a  time-bill,  therefore,  will  depend  on  the  length 
of  time  it  has  to  run  and  the  rate  of  intei'est  in  the  country  where  the 
bill  is  payable.  A  bill  drawn  payable  in  London  three  months  after 
date  is  bought  by  a  banker  at  a  price  which  is  equal  to  a  bill  payable 
on  demand,  less  three  months'  interest  at  the  rate  at  that  time  prevail- 
ing in  London,  for  the  purchaser  must  discount  the  bill  there  at  the 
ruling  rate  before  he  can  make  it  equally  available  with  a  draft  on 
demand.  It  may  be  added,  that  when  foreign  bills  are  bought  as  an 
investment,  a  thing  often  done,  it  is  for  the  purpose  of  earning  the 
higher  rate  of  a  foreign  country,  in  the  place  of  the  lower  rate  ruling 
at  home. 

It  may  be  well  to  note  that  when  bills  are  quoted  at  .$4.84  the  quo- 
tation does  not  mean  tliat  they  are  two  per  cent,  less  than  par,  but 
simply  that  they  can  be  bought  for  two  cents  and  65-100  less  than  the 
regular  value  of  a  pound  sterling.  If,  for  example,  a  bill  of  exchange 
were  drawn  for  £1,000,  the  amount  would  be  equivalent  to  $4,866.50; 


DEALINGS   IN   EXCHANGE.  251 

if  it  wt'i-e  quoted   at  ^4.H~>,   this  quotation   would   iiioau  that  the  bill 
<'ould  bo  l)oufrht  for  .H.'S"><»-fM'.  <>i'  -I^K'.oO  less  than  the  par  of  exchaufre. 

AVithin  a  few  years  tlie  praetiee  has  arisen  of  trausferrinj?  money 
by  telegraph,  or.  as  it  is  termed  by  the  uewsi)apers.  "cable  transfer." 
By  this  method  a  merchant  who  desires  to  ship  wheat  to  London  can 
complete  the  transaction  in  a  few  hours.  He  can  ship  the  wheat, 
teleuraph  the  fact  to  the  consignee  at  London,  obtain  particulars  con- 
cerning the  conditions  of  the  market,  and,  if  he  think  best,  have  th;^ 
wheat  Rold  at  once,  "to  arrive,"  and  to  remit  the  proceeds  through  a 
London  banker.  A  bill  does  not  appear  at  all  in  the  transaction.  Tho 
amount  of  business  done  in  this  manner  has  materially  reduced  the 
volume  of  bills  in  some  places.  In  the  Eastern  trade  with  London,  in 
which  competition  is  exceedingly  keen  and  the  margin  of  profit  conse- 
(luently  small,  the  telegraphic  transfer  system  has  been  in  use  for 
several  years.  The  amount  of  cable  transfers  between  this  country 
and  European  countries  is  constantly  increasing. 


252 


PRACTICAL  BANKING. 


CHAPTER  XXI. 
STATE  BANKS. 

On  the  31st  of  October,  1900,  there  were  3,935  national  banks,  w  liile 
the  niiml)er  of  state  lianks  was  4..3G9.  But  the  resources  of  the  na- 
tional banks  were  much  greater— $4,944,100,000;  the  state  banks  having 
but  little  more  than  one-third  of  this  amount— .*?1.759.835,802.  Yet 
this  is  a  large  sum,  and  the  state  banks  are  highly  important  insti- 
tutions. 

Some  statistics  relating  to  their  location  may  not  be  without  in- 
terest.. Missouri  still  leads  the  list,  having  510;  Nebraska  follows  with 
405,  and  Kansas  384.  Kentucky  has  the  next  largest  number,  219,  Iowa 
has  214,  New  York  200,  Michigan  194,  California  178,  Minnesota  188, 
Ohio  1G4,  and  Illinois  155. 

LOCATION  OF  STATE  BANKS. 


State.  No. 

Alabama 20 

Arizona 14 

Arkansas 39 

California ITS 

Colorado 30 

Connecticut   8 

Delaware   2 

Florida    23 

Georgia 144 

Illinois 155 

Indiana 90 

Iowa 214 

Kansas   384 

Kentucky 219 

Louisiana   50 

Maryland   20 

Michigan  194 

Minnesota  188 

Mississippi 101 

Missouri   510 


state.  No. 

^lontana  15 

Nebraska    405 

New  Jersey 20 

New   Mexico G 

New   York 200 

North  Carolina  54 

North  Dakota 12(? 

Ohio 1G4 

Oklahoma 71 

Oregon  19 

Pennsylvania    9f 

Rhode  Island   

South  Carolina ...      27 

South  Dakota lOO 

Tennessee 

Utah    20 

Virginia   95 

Washington 27 

West   Virginia 83 

Wyoming 9 


STATE   BANKS.  253 

The  (Jovernnu'iit  iinposod  a  tax  of  ten  per  cent,  on  the  circulation 
of  tlie  State  haulvS,  wliicli  toolv  effect  on  tlie  first  of  July.  ISGG.  under 
an  anieiulment  to  the  law  creatiui;  the  National  banking  system.  This 
rate  was  too  high  to  allow  any  profit  on  the  State  bank  circulation. 
and  consequently  it  was  withdrawn.  Indeed  the  object  of  the  law 
was  to  expel  it,  in  order  to  make  room  for  the  circulation  of  the 
National  banks.  In  other  respects,  however,  the  State  banks  are  con- 
ducted as  they  were  before  the  creation  of  the  National  banking 
system.  But  the  internal  mechanism  of  a  State  and  National  bank  is 
quite  the  same,  and,  therefore,  in  describing  the  methods  of  conduct- 
ing a  discount  bank,  no  distinction  need  be  kept  in  mind  between  a 
National  and  State  bank.  The  former  alone  issues  circulating  notes, 
and  the  mode  of  doing  this  will  be  explained  more  fully  hereafter. 
The  main  function  of  receiving  deposits  and  of  loaning  them  is  per- 
formed in  essentially  the  same  way  by  all  banks.  Of  course,  there 
are  minor  differences;  every  bank  has  some  ideas  of  doing  business 
that  are  peculiar  to  it,  but  it  may  be  truly  said  that  the  main  features 
of  the  banking  business  are  the  same  throughout  the  country.  The 
greatest  differences  exist  between  banks  in  the  large  cities  and  the 
small  places,  and  these  Avill  Ije  explained  in  their  proper  place. 

State  banks  possess  some  advantages,  in  the  opinion  of  some 
bankers,  that  are  worth  mentioning: 

1.  They  are  not  examined  so  critically;  in  some  cases  are  not  re- 
quired to  make  returns  to  State  officials,  and  in  no  case  are  such  full 
returns  required  as  the  National  law  requires  to  be  made.  Yet  the 
numerous  requirements  by  the  Government  strengthen  public  con- 
fidence in  the  banks,  and  prol)ably  the  majority  of  banking  officials 
would  not  have  them  removed  or  lessened  if  they  could.  Not  all  think 
so,  however;  hence  some  banks  remain  under  the  shadow  of  the  State 
instead  of  the  Nation,  because  they  are  watched  less  closely  and  can 
do  things  which  would  not  be  permitted  if  they  were  National  bank- 
ing institutions. 

2.  There  is  another  advantage  which  State  banks  claim  to  possess 
over  their  National  rivals.  They  can  certify  checks  in  excess  of  the 
amount  which  the  depositor  may  have  at  the  moment  of  certifying. 
The  National  banks  are  expressly  forbidden  to  do  this.  In  several 
cases  they  disregard  the  law,  but  the  Controller  of  the  Cui-rency  dealt 
with  the  offenders  so  severely  that  the  banks  which  were  the  most 
desirous  of  continuing  the  practice  withdri'w  and  reorganized  as  State 
banks.  The  institutions  that  withdrew  were  located  in  New  York  City, 
and  Ihey  maintained  that  whatever  advantages  they  would  gain  if 
they  continued  to  exist  as  National  banks  would  not  equal  their  losses 
if  the  practice  of  over-certifying  could  not  be  continued.  Wishing  to 
continue  it  and  not  infringe  the  law,  they  became  State  banks,  and 
as  such  could  continue  this  objectionable  practice  without  legal 
hindrance. 


254  PRACTICAL  BANKING. 

The  banking  laws  of  the  States  possess  many  variations,  and  -vye 
have  not  space  for  even  an  abridgment  of  them.  As  no  State  banks 
issue  circulating  notes,  all  regulations  pertaining  to  that  subject  are 
dormant.  In  recent  years,  however,  many  of  the  States  have  revised 
their  banking  laws,  conforming  them  more  nearly  with  the  National 
bank  act. 


PRIVATE  BANKS.  255 


CHAPTER  XXII. 


PRIVATE     BANKS. 


Although  of  less  relative  importance  than  formerly  they  were, 
private  banks  continue  to  maintain  a  good  standing,  and  prove  well 
adapted  to  some  phases  of  tlie  business  of  banlving.  The  capital  em- 
ployed by  a  private  baulc  is  apt  to  be  variable  in  amount,  not  a  fixed 
sum  represented  by  stoclv  certificates,  so  that  the  returns,  which  are 
made  the  basis  of  a  tax,  probably  represent  the  minimum  of  capital 
employed. 

In  addition  to  this,  it  may  be  said  that  many  of  the  State  banks, 
while  running  as  such,  are  in  reality  private  institutions,  the  capital 
stock  being  held  l>y  one  or  two  owners,  and  the  directorship  being 
nominal.  This  use  of  bank  organizations  is  facilitated  by  the  ease 
with  which  they  can  be  formed  in  most  of  the  States,  and  is  resorted 
to  from  various  reasons.  In  some  cases  it  is  to  have  the  benefit,  when 
starting  a  new  concern,  of  the  prestige  and  credit  which  the  title  of 
"bank"  is  supposed  to  give;  in  others,  and  more  frequently,  to  secure 
the  immunity  of  limited  liability;  in  others,  again,  to  retain  the  name 
and  clientage  of  a  long-established  business. 

Private  banks  have  furnished  the  foundation  of  many  of  the 
National  banks  now  existing.  They  were  established,  flourished  for  a 
few  years,  acquired  a  good  reputation,  and  were  then  organized  into 
National  banks.  Such  is  their  origin  in  many  places,  especially  in  the 
Western  and  Southwestern  States. 

In  using  the  figures  found  in  the  reports  of  the  Controller  of  the 
Currency,  it  must  be  remembered  that  they  are  by  no  means  com- 
plete. Many  private  banks  make  no  returns  whatever,  as  they  are  not 
required  to  do  so  by  any  law.  All  the  returns  are  purely  voluntary. 
Doubtless  the  entire  capital  and  other  resources  of  private  banks  are 
much  larger  than  the  figures  contained  in  the  Controller's  reports  in- 
dicate. For  this  reason  comparisons  with  the  National  banks  are  mis- 
leading, as  complete  returns  are  made  of  all  their  resources  and 
liabilities.  The  Controller's  figures  are  used  because  from  no  other 
source  can  as  many  lie  obtained. 

The  first  table  to  be  presented  relates  to  the  resources  and  liabilities 
of  private  banks  during  the  last  five  years. 


256  PRACTICAL  BANKING. 


Resources  of  Private  Banks  by  States  for  1896. 

New  York  $6,076,674 

Pennsylvania    8,5S6,171 

Maryland 309,980 

North  Carolina    1,368,459 

Georgia    111,262 

Alabama   730,880 

Texas   0,847.262 

Ohio    7.422,012 

Indiana    9,821,482 

Illinois   13,019,453 

Michigan    2.352,996 

Wisconsin   7,072,410 

Iowa    9,918,004 

Minnesota   2.048,172 

Missouri   6,801.792 

South  Dakota   3,176,949 

Washington    1.567,910 

California   2,632,475 

Montana   •  •  •  401,060 

Idaho   411,727 

Wyoming  841,712 

Nevada    777,265 

Colorado   1,244.408 

Indian  Territory    207,604 

Total    $94,348,131 


The  general  character  and  function  of  the  private  banks  is  shown 
by  their  small  averages,  and  also  by  their  geographical  distributions. 
Nearly  two-thirds  of  their  number,  and  over  fifty  per  cent,  of  their 
deposits,  are  reported  from  the  Western  States  and  Territories.  It 
is  in  that  region  of  new  and  small  communities  where  active  enter- 
prise and  industry  abound,  along  with  a  plentiful  lack  of  capital,  that 
the  conditions  are  found  most  favorable  to  their  establishment  and 
maintenance.  A  town  too  small  to  estal)lish  or  support  a  National 
bank,  Avith  a  capital  of  flffy  thousand  dollars,  may  yet  feel  flic  need  of 
banking  facilities,  and  this  need  becomes  more  and  more  pressing 
until  a  leading  nu>rcliant,  or  some  man  who  has  been  in  the  way  of 
buying  notes  or  making  small  loans  at  remunerative  rates,  either  as- 
sumes or  gradually  lias  forced  upop  him  the  functions  of  a  banker 
and  puts  nut  bis  s'gii.  Ills  capital  may  be,  and  usually  is,  small  at 
the  outset,  but  in  a  rural  community  every  man  is  known  to  his  neigh- 


PRIVATE   BANKS.  257 

bors.  Ilis  "means"  are  closely  estimated,  his  integrity  and  ability  are 
pretty  correctly  gauged,  his  habits  and  manner  of  life  are  known. 
In  respect  to  these  he  is  subjected,  not  to  periodical  and  perfunctory 
examinations  by  National  or  State  officials,  but  to  continuous  and  rigid 
watchfulness  by  self-constituted  examiners  who  are  very  apt  to  reach 
correct  results,  although  they  are  not  permitted  to  count  his  cash  or 
scrutinize  his  bills  discounted  and  his  ledger.  If  he  passes  this  inves- 
tigation successfully  he  will  win  tlie  confidence  of  his  townsmen  and 
his  business  will  prosper.  Such  has  been  the  origin  of  many  of  the 
largest  and  most  respectable  private  institutions  now  in  existence. 

Private  baulcers,  so  far  as  they  command  public  confidence,  do  so 
upon  their  reputation  for  wealth  and  their  character  for  honesty  and 
ability,  and  these  are  applied  directly  to  the  management  of  the 
business  confided  to  them.  Under  tliese  circumstances  there  must  be, 
other  things  being  equal,  a  greater  concentration  of  responsibility, 
a  stronger  sense  of  direct,  personal  liability  than  is  felt  by  either  the 
directors  or  officers  of  incorporated  institutions,  so  that  this  form  of 
banking  offers  to  the  dealer,  equally  with  any  other  system,  that 
which  must  after  all  be  his  chiefest  and  best  guaranty,  namely,  faith 
in  the  integrity  and  capacity  of  the  management. 

Private  banlcs,  however,  lack  one  important  quality,  that  of  per- 
manency. Especially  is  this  the  case  in  the  United  States,  and  as, 
from  various  causes,  they  may  be  wound  up.  they  are  little  likely, 
in  the  great  cities  and  larger  towns,  to  be  replaced  by  similar  insti- 
tutions. Gradually,  with  the  growth  and  development  of  the  country, 
the  function  which  they  are  best  fitted  to  fill  diminishes,  and  their 
business  is  merged  into  or  usurped  by  National  and  State  banks;  and 
this  tendency  will  continue. 

As  to  the  details  of  their  management,  little  need  be  said.  These 
should  in  no  wise  differ  from  those  of  well-conducted  National  and 
State  banks,  and  for  the  most  part  they  are  so  managed.  In  rare 
instances  private  banks  have  adopted  the  practice  of  making  public 
reports  of  their  condition,  and  publishing  them  along  with  those  fur- 
nished periodically  by  their  National  and  State  competitors.  It  would 
be  well  if  in  some  way  this  could  be  made  a  universal  custom. 

Occasionally  there  is  to  be  found  a  banker  who  affects  to  despi.se 
theory  and  red  tape,  names  by  which  he  designates  the  restrictions 
which  it  is  the  intention  of  National  and  State  statutes  to  impose, 
but  it  will  generally  prove  that,  if  successful,  he  adheres  to  their 
substance  if  not  to  their  form.  The  advantages  which  are  sometimes 
claimed  to  be  found  in  an  Immunity  from  these  salutary  requirements 
are  questionable.  So  far  as  such  so-called  advantages  are  embraced, 
their  tendency  is  to  allure  men  from  the  safe  paths  of  correct  bank- 
ing; the  prudent  and  successful  bankers,  under  any  system,  are  those 
who  hold  themselves  strictly  amenable  to  the  rules  and  principles 
which  experience  has  proved  ought  to  govern, 


258  PRACTICAL  BANKING. 

A  few  words  should  be  said  about  the  large  banking  houses  that 
are  only  to  be  found  in  great  commercial  centers  lilie  New  York. 
Many  of  them  were  originally  founded  with  a  view  to  conducting  a 
regular  banking  business,  of  receiving  deposits  and  discounting  com- 
mercial bills,  and  numbers  of  them  continue  to  do  a  large  business 
of  this  kind,  especially  for  out-of-town  correspondents.  But  they  have, 
for  the  most  part,  gone  largely  into  the  business  of  placing  corporate 
loans,  of  acting  as  agents  for  states  and  municipalities,  and  of  dealing 
in  foreign  exchange.  Along  with  their  growth  in  this  direction  there 
has  been  a  decline  in  that  which  may  be  more  strictly  termed  banking, 
until  many  of  them  have  come  to  resemble  the  great  financial  firms  of 
London,  who  style  themselves  merchants,  not  bankers. 

Several  of  the  larger  banks  in  Xew  York  have  from  time  to  time 
sought  to  enlarge  their  dealings  in  foreign  exchange,  but  never  with 
any  marked  degree  of  success.  The  causes  of  this  are  not  far  to  seek. 
A  busy  banlvcr  engrossed  in  the  management  of  a  large  line  of  de 
posits  and  discounts  cannot  scan  with  sufficient  care  the  wide  field 
of  foreign  exchanges.  The  conditions  of  supply  and  demand,  the  dif- 
ferent standards  of  money,  the  changing  rates  of  interest  in  the  various 
financial  centers,  and  the  numerous  other  influences,  ordinary  and 
extraordinary,  which  affect  the  business  of  exchanges,  demand 
nothing  less  than  constant  study  by  the  man  who  would  master  them, 
and  their  perfect  mastery  is  necessary.  It  is  probable,  too,  that  the 
foreign  agencies  which  are  available  for  a  bank  to  employ  do  not 
render  the  effective  service  that  is  requisite;  that  the  London  and 
Continental  branches,  having  common  interests,  which  form  a  part  of 
the  organization  of  all  the  large  houses  dealing  in  exchange,  are 
essential  to  success.  This  segregation  of  the  exchange  business  from 
that  of  banking  is,  however,  but  an  illustration  of  the  inevitable 
tendency  to  specialization  which  marks  commercial  progress. 


COUNTRY   BANKING.  259 


CHAPTER  XXIII. 


COUNTRY     BANKING. 


General  priucipies  of  bauking  apply  alike  to  banks  irrespective  of 
location.  Details  iu  conducting  the  business  may  be  materially  in- 
fluenced by  the  bank's  position  in  the  country.  The  routine  of  large 
banks  in  commei'cial  centers  is  usually  the  outgrowth  of  long  experi- 
ence, careful  experiment  and  constant  thought  of  improvement.  The 
bank  president  in  a  country  town,  though  he  may  have  carved  his  Avay 
to  position,  through  gradual  advancement  from  runner  or  sweeping- 
boy,  M'ould,  if  placed  at  the  head  of  one  of  the  large  banks  of  a 
metropolitati  city,  be  found  unable  to  manage  its  affairs.  He  may  be  a 
better  flnancier  and  possess  greater  executive  ability  than  many  city 
bank  presidents,  but  he  would  lack  in  that  particular  knowledge  whioh 
comes  only  from  experience.  What  we  say  of  bank  presidents  will 
apply  as  well  and  possibly  with  more  strength  to  other  officers  and  to 
the  clerical  force.  And  in  selecting  the  president  in  our  illustration  we 
do  not  refer  to  that  class  who  are  presidents  only  in  name.  AVe  mean 
presidents  who  are  in  every  sense  entitled  to  the  position.  And,  thanks 
to  the  progress  of  the  times,  figurehead  presidents  are  not  so  numerous 
noM-  as  a  few  j^ears  ago.  Sharp  competition  has  lifted  banking  to  a 
science.  It  has  brought  capable  heads  almost  without  exception  into 
president's  chairs.  'J'his  is  true  of  country  as  well  as  of  city  bank 
presidents. 

However  true  the  above,  it  furnishes  no  evidence  that  less  capa- 
bility, thoroughness,  or  good  financiering  is  required  in  the  country 
than  in  the  city  bank.  Especially  good  judgment,  careful  calculation, 
and  a  close  watch  over  the  finances  are  requisite  iu  conducting  a 
coimtry  bank.  Opportunities  to  loan  money  are  not  often  as  favorable 
iu  the  country  as  in  large  business  centers.  The  securities  offered,  too, 
are  of  a  different  kind.  The  country  banker's  customers  are  more  fre- 
quently personal  acquaintances  and  friends.  He  is  called  upon  oftener 
to  lay  aside  personal  and  friendly  considerations  in  loans  and  dis- 
counts. He  must  know  his  customers  better  because  he  trusts  them 
more  on  personal  obligations.  r>oaiis  in  large  cities  are  made  largely 
on  collateral  securities.  In  country  banks  such  securities  are  seldom 
received.  The  personal  responsibility  of  the  borrowers  or  of  their 
endorsers  is  more  usually  the  thing  to  be  considered. 


260  PRACTICAL  BANKING. 

The  routine  of  bank  work  varies  according  to  the  volume  of  busi- 
ness transacted.  The  motliods  employed  in  a  bank  where  the  average 
balances  due  depositors  reach  half  a  million  dollars  would,  in  a  bank 
where  such  balances  did  not  exceed  one  hundred  or  two  hundred  thou- 
sand dollars,  prove  curabt>rsome  and  complicated.  On  the  other  hand, 
a  system  which  meets  every  requirement  in  the  medium-size  institution 
would,  if  introduced  in  the  large  city  Lank,  ba  found  wholly  inadequate. 
The  clerical  force  of  a  bank,  too,  has  much  to  do  with  the  method  that 
may  be  introduced  to  the  best  advantage.  In  the  larger  city  banks 
it  is  not  unusual  to  see  employed  as  the  clerical  force  twenty  to  forty 
persons.  Many  banks  in  small  cities  and  towns  find  that  two  or  three 
persons  will  do  the  work  comfortably.  We  could  name  many  banks  of 
respectable  size  where  the  average  deposits  reach  one  hundred  thou- 
sand to  two  hundred  thousand  dollars,  in  which  not  more  than  two 
clerks  are  employed,  and  some  where  one  clerk  and  the  cashier  get 
through  Avith  the  work.  The  cashier  in  such  case  is  also  paying  teller, 
receiving  teller,  discount  clerk,  note  teller,  and  general  bookkeeper. 
The  work  is  often  divided  up  between  the  two  or  three  persons  with- 
out any  special  reference  to  the  functions  of  individual  members  in  a 
fully  organized  force. 

The  books  used  in  a  country  bank  do  not  differ  materially  in  num- 
ber or  formular  arrangement  from  those  used  in  metropolitan  places. 
The  following  are  those  in  most  common  use:  General  ledger,  general 
journal,  deposit  journal  or  teller's  cash,  deposit  ledger,  sometimes 
called  individual  ledger  and  sometimes  customers'  ledger,  collection 
register,  discount  register,  tickler,  sometimes  two  ticklers,  foreign  and 
domestic;  certiticate  of  deposit  register,  draft  register,  deposit  ledger 
balance  book,  or  as  some  term  it  depositors'  balance  ledger,  and  offer- 
ing book,  the  latter  being  sometimes  dispensed  Avith.  Then  there  are 
also  used  in  some  banks  a  discount  ledger  and  daily  general  balance 
book.  A  monthly  statement  book  is  kept  by  National  and  also  by  many 
private  or  State  banks. 

An  experienced  country  bank  bookkeeper  gives  the  following  de- 
scription of  his  daily  routine: 

"I  enter  in  the  journal  all  remittances  in  detail;  total  amount  of 
loans  and  notes  discounted  each  day,  the  latter  I  get  from  the  dis- 
count register;  notes  and  loans  paid,  which  come  from  the  tickler, 
these  being  entered  separately  in  the  journal  with  the  total  only  ex- 
tended into  the  money  column.  Collections  paid,  if  belonging  to  our 
correspondents,  go  in  the  journal;  if  they  do  not  belong  to  correspond- 
ents, they  are  remitted  for  direct;  the  draft  register,  in  these  trans- 
actions, completes  the  entry  which  opens  in  the  collection  register. 
Drafts  drawn  on  our  correspondents  are  journalized  and  other  trans- 
actions such  as  exchange,  interest,  expense,  etc.  In  closing  the  journal 
fur  the  day,  the  footings  of  the  deposit  journal,  which  with  us  are  the 
total  amount  of  clicM-ks  paid  and  the  total  amount  of  deposits  received 


COUNTRY  BANKING.  261 

are  entered.  In  one  respect  my  journal  represents  a  cash  book.  I 
brins?  forward  each  day  the  balance  of  cash  on  hand.  This  enables 
me  to  prove  my  cash  by  my  journal  by  balancing  it  the  same  as  a 
cash  boolv.  The  journalizing  is  done  at  the  close  of  banking  hours 
and  the  entries  are  posted  to  the  ledger  during  the  first  hours  of  the 
next  day.  As  the  posting  is  done,  the  new  balances  are  entered  in  the 
daily  balance  book  which  is  lying  conveniently  on  the  desk.  Opposite 
the  accounts  not  affected  the  previous  day's  balances  are  extended. 
When  the  posting  is  finished  the  daily  balance  book  is  footed,  which 
furnishes  a  proof  of  the  work. 

"On  the  debit  side  of  the  deposit  journal  appear  all  checks  and 
certificates  of  deposit  paid;  on  the  credit  side  are  deposits  received 
and  certificates  of  deposit  issued.  The  footings  only  of  this  book  are 
journalized.  The  footings  are  made  direct  to  the  depositors'  ledger. 
The  account  in  the  general  ledger  of  "deposits"  is  charged  and  credited 
frou)  the  journal. 

"Our  ledgers  are  provided  with  balance  columns,  the  general  ledger 
having  one  account  to  a  page,  the  deposit  ledger  two.  In  the  general 
ledger  there  are  four  money  columns,  two  for  items  and  two  for 
balances.  In  the  deposit  ledger  there  are  but  three  columns,  Dr.,  Cr., 
and  balance.  In  the  balance  column  over-drafts  are  distinguished 
from  credit  balances  bj^  being  entered  in  red  ink. 

"We  use  only  one  collection  register.  It  is  made  to  serve  a  double 
purpose,  A'iz.:  It  is  a  record  of  bills,  etc.,  lirought  in  by  our  customers 
to  be  sent  out  for  collection,  and  also  of  collections  received  from  our 
correspondents  and  others,  excepting  sight  drafts.  After  the  record 
is  made  in  the  collection  register,  it  is  entered  in  the  tickler  under 
the  day  on  wliich  it  falls  due.  When  the  collection  is  paid  we  make 
the  proper  notation  in  the  tickler  and  either  credit  our  correspondent 
or  remit  direct  to  the  sender  according  to  directions.  In  case  the  col- 
lection is  not  paid  and  is  protested,  immediate  notice  is  given.  Of 
sight  drafts  received  for  collection  we  make  no  book  record.  The 
letter  accompanying  the  collection  is  the  original  and  only  entry  we 
have.  After  presenting  the  draft  for  payment  we  note  on  the  accom- 
panying letter  how  it  was  disposed  of— whether  paid  or  returned.  If 
paid  and  belonging  to  a  correspondent  it  is  properly  credited.  If  it 
does  not  come  from  a  correspondent  we  remit  for  it  immediately,  so 
noting  on  the  letter.  The  letter  is  then  filed  as  a  history  of  the 
transaction.  Our  letter-copying  book  furnishes  a  history  of  all  col- 
lections passing  through  our  hands." 

The  cashier  of  a  well  regulated  and  carefully  managed  country 
bank  says: 

"Three  persons  do  all  the  work  in  our  bank.  The  president  at- 
tends to  the  correspondence  and  takes  charge  of  the  loans  and  dis- 
counts. I  perform  the  work  of  paying  and  receiving  tellers  and  gen- 
eral bookkeeper,  besides  the  ordinary  duties  of  cashier.    An  assistant 


262  PRACTICAL  BANKING. 

keeps  the  customer's  ledger  and  helps  me  in  some  of  the  details  about 
the  other  books.  Our  loans  and  discounts  range  from  one  hundred 
and  fifty  thousand  to  two  himdred  thousand  dollars.  The  depositors' 
balances  are  in  the  aggregate  usually  not  far  from  the  loans  and  dis- 
counts. We  hold  readily  convertible  stocks  and  bonds  to  the  amount 
of  forty  thousand  to  sixty  thousand  dollars.  Our  capital  is  two  hundred 
thousand  and  circulation  one  hundred  and  sixty-two  thousand.  Cash 
on  hand  seldom  gets  below  twenty  thousand  dollars,  and  our  sur- 
plus is  tifty  thousand.  The  net  profits  enable  us  to  pay  the  stock- 
holders seven  per  cent.,  and  we  generally  carry  two  or  three  per  cent, 
to  the  surplus.  A  dull  season  occasionally  cuts  our  dividends  down  to 
half  the  usual  amount.  We  have  run  so  close  that  no  dividends  were 
declared  for  a  year. 

"My  aim  in  the  routine  work  is  to  avoid  all  unnecessary  labor.  I 
use  as  few  books  as  possil)le.  A  few  years  ago  I  thought  a  huge 
journal  was  indispensable,  but  I  have  so  systematized  the  work  that 
I  now  have  no  use  for  it.  In  fact  I  have  not  used  a  journal  at  all  for 
more  than  a  year.  The  bookkeeping  is  done  in  such  a  manner  that  T 
can  make  up  a  verified  statement  of  our  condition  within  an  hour  any 
day  after  we  close.  Besides  the  general  ledger  I  keep  only  the  ordinary 
balance  ledger  for  depositors"  accounts.  In  this  I  also  keep  the  ac- 
counts of  banks  and  bankers.  The  accounts  in  the  balance  ledger  are 
arranged  alphabetically,  and  this  book  is  kept  so  closely  posted  that 
the  last  check  paid  and  last  deposit  made  are  entered  up  within  a  few 
minutes  after  tlie  bank  is  closed  for  the  day.  We  have  only  a  few 
depositors  who  draw  more  than  four  or  five  checks  in  a  day  on  an 
average.  For  these  special  cases  I  provide  by  giving  their  account 
a  double  space  in  the  balance  ledger.  In  posting  the  checks  and  de- 
posits my  assistant  makes  his  entry  direct  from  the  checks  and  de- 
posit slips.  As  the  entry  is  made  he  marks  the  page  by  leaving  pro- 
jecting at  the  top  of  the  book  a  narrow  strip  of  colored  paper.  This 
enables  him  to  turn  at  once  to  the  pages  on  which  changes  have  been 
made  during  the  day.  These  pages  are  footed,  and  the  footings  com- 
pared with  the  columns  in  my  cash  book,  headed  'depositors'  debits' 
and  'depositors'  credits.'  The  comparison  furnishes  a  proof  that  all 
checks  and  deposits  for  the  day  have  been  posted.  An  additional  test 
comes  when  the  balances  of  all  the  accounts  are  extended  for  the 
next  day  and  the  footings  compared  with  the  general  ledger  account 
of  'depositors'  after  the  totals  of  the  various  books  have  been  posted. 
I  do  not  enter  in  my  cash  the  names,  but  merely  the  amounts  of  debits 
and  credits  belonging  to  the  depositors'  accounts.  After  the  work 
has  been  proven  I  take  the  balance  ledger  and  have  my  assistant 
read  over  the  checks  and  I  compare  his  postings  to  satisfy  myself  that 
the  postings  are  all  properly  made.  When  this  is  done  I  run  over  the 
general  ledger,  the  postings  to  that  having  been  made,  and  carry  the 
balances  to  the  daily  balance  sheet.  This  proves  the  entire  work  of 
the  day." 


PART  II. 


SAVINGS  BANKS. 


(263) 


UTILITY   OF  SAVINGS  BANKS.  265 


CHAPTER   I. 


UTIT.ri  V    OF    SAYINGS    BANKS. 


This  class  differs  from  State  or  National  banks  in  that  they  have 
no  special  capital  owni'd  by  a  few  or  by  many  individuals,  but  their 
capital  is  the  deposited  money  of  a  great  many  saving  people.  They 
are  mutual.  That  is,  every  one  who  puts  money  in  is  practically  an 
owner  in  the  bank,  and  the  proht  made  by  the  bank,  after  paying  taxes 
and  expenses,  and  putting  aside  a  proper  reserve,  is  paid  to  the  parties 
whose  money  earns  the  profit.  The  people,  in  their  dimes  and  dollars 
and  tens  and  hundreds,  own  the  Savings  banks.  Hence  it  is  that 
these  institutions  are  very  rigorously  guarded  by  the  laws  of  our 
States.  It  is  not  the  idea  of  a  Savings  bank  to  pay  a  large  percentage 
of  interest.  Safety  is  the  first  thing,  and  in  order  to  be  safe,  only 
choice  and  high  priced  investments  can  be  purchased  by  the  managers. 

Savings  banks  are  voluntary  trusteeships,  undertaken  by  a  few  per- 
sons in  a  particular  locality,  either  self-appointed,  renewing  their  own 
number  as  vacancies  occur,  or  chosen  by  the  depositors.  The  corpor- 
ate body  thus  formed  receives  deposits  or  funds,  small  in  amount, 
and  from  the  poorer  classes  of  society.  It  undertakes  to  invest  them 
with  due  diligence  in  the  safest  practicable  way,  and  to  divide  all  the 
income,  after  paying  necessary  expenses,  among  the  depositors,  at 
stated  and  convenient  times.  None  of  the  profit  on  these  investments 
belongs  to  the  corporation  itself.  All  of  it  belongs  to  the  depositors. 
If  a  surplus  is  created,  it  is  only  for  a  safeguard  against  occasional 
losses  or  emergencies.  In  every  respect,  the  corporation  is  nothing  but 
the  agent  or  trustee  of  the  whole  body  of  depositors,  and  works  for 
their  account  and  l)enefit,  not  for  its  own. 

"The  principal  reason  for  the  creation  of  a  Savings  bank  is  to 
offer  to  the  poor  and  to  those  of  small  incomes  a  means  of  keeping 
safe  their  occasional  savings.  A  secondary  reason  is  to  enable  such 
persons,  by  combining  these  small  sums,  to  invest  them,  so  as  to 
earn  some  interest.  Such  persons  do  not  ordinarily  draw  out  their 
deposits,  except  on  an  emergency.  The  deposits  are  made  to  meet 
emergencies  in  the  private^  life  of  the  depositors,  and  are  not  subject 
18 


266  PRACTICAL  BANKING. 

to  the  daily  calls  of  business.  It  thus  appears  that,  as  such  emergen- 
cies usually  result  from  sickness  or  lack  of  employment,  the  drafts 
will  be  gradual,  not  sudden,  and  are  not  subject  to  sudden  increase  by 
reason  of  commercial  revulsions,  unless  in  the  exceptional  case  of 
panic.  Large  deposits,  which  do  not  come  from  savings,  but  which 
are  the  capital  of  persons  who  have  acquired  wealth,  should  be  re- 
jected.* They  can  Invest  their  own  funds,  and  they  are  likely  to 
withdraw  their  deposits  suddenly  and  in  large  sums." 

Some  one  has  said  that  they  are  meant  "to  help  men  to  help  them- 
selves." It  is  not  ordinary  human  nature  to  save  and  put  by  a  store 
for  the  ever  possible  rainy  day.  The  savage  and  the  child  live  in  reck- 
less improvidence.  Some  one  must  take  care  of  the  improvident,  as 
society  is  organized  now  in  the  enlightened  nations.  There  are  saving 
people  and  spending  people.  There  are  people  who  create  property 
and  people  who  waste  it. 

By  and  by  the  spendthrift  has  run  his  life,  and  comes  in  poverty 
and  need  to  his  brother  and  asks  for  support.  Misfortime  may  fol- 
low the  prudent  and  bring  them,  by  unexpected  reverses,  to  want. 
In  the  artificial  conditions  whicli  our  civilization  creates,  the  demands 
of  the  needy  are  greater  than  they  were  in  primitive  conditions  of 
living.  Such  demands  as  these  meet  the  intensely  practical  mind  to- 
day, just  as  they  do  that  of  the  philanthropic.  So  they  did  a  hundred 
years  ago. 

"When  a  great  want  is  felt  in  the  world  men  begin  to  try  to  solve 
tlie  problem  to  satisfy  the  want.  This  question  of  dealing  with  simple 
men  and  women,  of  taking  care  of  the  humble  who  had  no  estates, 
of  taking  care  of  the  poor  who  come  to  want  by  improvidence  or  by 
misfortune,  appears  to  have  received  the  studious  notice  of  the  econo- 
mist and  philanthropist  at  the  same  time.  While  Jeremy  Bentham 
and  Malthus  enforced  the  benefits  of  providence  and  savings  in  the  in- 
terests of  the  great  body  of  the  people  as  well  as  of  those  who  saved, 
about  the  opening  of  this  century  an  English  clergyman  and  a  Scotch 


♦"Certainly,  the  use  of  these  institutions  should  be  confined  to  the 
class  for  whose  benefit  they  were  devised,  and  only  that  class  who 
have  not  the  time,  opportunity,  or  ability  to  investigate  and  determiue 
for  themselves  a  proper  investment  or  adequate  means  to  enable 
them  to  pay  for  the  information  through  private  sources,  should  be 
permitted  to  become  depositors. 

In  case  of  temporary  embarrassment,  the  largest  deposits,  those 
belonging  to  what  may  l)e  properly  termed  a  capitalist  class,  would 
be  soonest  withdrawn,  and  whenever  private  investment  promises  bet- 
ter returns  these  funds  leave  the  banks.  Whenever  money  is  cheap 
and  hard  to  place,  this  class  solves  the  difficulties  of  investment  by 
placing  their  moneys  in  our  Savings  banks.  Instead  of  supporting  the 
banks,  they  make  of  them  a  convenience,  and  prey  upon  their  re- 
sources; instead  of  being  an  element  of  strength,  they  are  a  constant 
menace. 

Most  States  recognize  this  principle,  and  have  fixed  limitations  de- 
signed to  exclude  this  class  of  depositors.     Instance:     Connecticut  lim- 


UTILITY   OF   SAVINGS  BANKS.  267 

minister,  each  in  bis  own  parish,  sot  in  operation  a  plan  for  his  par- 
isliioners  to  save  money,  which  embodies  in  substance  the  fundamen- 
tal principle  of  the  savings  institution.  Contemporaneously,  a  wo- 
man, Mrs.  IM'iscilla  Waketield,  (>stablished  such  an  organization  in 
England.  Similar  ideas  also  were  advanced  at  the  same  period  by  a 
London  magistrate,  Patrick  Colquhoun,  who  wrote  upon  the  question 
of  popular  indigence  and  measures  for  its  relief  as  early  as  180G. 

In  America,  in  181G  and  1817.  the  needs  and  the  claims  of  the 
poor  awakened  attention  at  Boston  and  Ncm'  York,  and  thought  was 
immediately  directed  towards  the  savings  institution,  because  it  w'as 
deemed  most  helpful.  At  Boston,  in  181G,  it  was  proposed  "to  form 
an  institution  for  the  security  and  improvement  of  the  savings  of  per- 
sons in  humble  life  until  required  by  their  wants  and  desires." 

The  first  Savings  bank  in  the  State  of  New  York  was  the  direct 
result  of  a  meeting  of  citizens  at  the  New  York  Hospital  on  December 
IG,  1817,  to  take  into  consideration  the  subject  of  pauperism.  A  so- 
ciety was  there  formed  for  the  prevention  of  pauperism.  A  commit- 
tee was  then  appointed  to  report  on  the  prevailing  causes  of  poverty. 
The  report  recites,  among  other  causes,  that  "Prodigality  is  compara- 
tive among  the  jioor;  it  prevails  to  a  great  extent  in  inattention  to 
those  small  but  frecpient  savings  when  labor  is  plentiful  which  may 
go  to  meet  privation  in  unfavorable  seasons."  When  the  constitution 
of  this  society  was  drafted  it  declared  that  one  prime  purpose  of  the 
organization  should  be  "to  hold  out  inducements  to  those  people  to 
economy  and  savings  from  the  fruits  of  their  own  industry  in  seasons 
of  great  abundance."  The  earnestness  of  the  men  who  were  members 
of  this  organization  is  proved  in  the  passage  of  an  act,  upon  their  pe- 
tition, by  the  Legislature  of  1819,  for  the  incorporation  of  the  Bank 
for  Savings.  In  each  of  the  two  years  thereafter  a  Savings  bank  was 
incorporated  in  that  State.  The  Philadelphia  Savings  Fund  Society 
was  incorporated  in  February,  1819. 

Second. — The  savings  institution  is  not  organized  to  make  money. 
It  is,  therefore,  wholly  different  from  the  discount  bank  in  motive 
and  aim.    The  Savings  bank  receives  money  chiefly  to  keep  it  securely 


its  amounts  receivable  in  any  one  year  from  a  single  individual  to 
$1,000.  Vermont  limits  the  aggregate  to  ,$2,000.  New  York  limits  the 
aggregate  to  $3,000.  Massachusetts  limits  deposits  to  $1,000  from 
each  individual,  and  allows  it,  by  accumulation  of  interest,  to  reach 
$1,G00,  but  allows  no  dividend  upon  any  sum  exceeding  $1,G00.  Each 
of  these  States  makes  varying  exceptions  as  to  trust  funds,  etc. 

Recently,  while  examining  a  discount  bank,  I  found  twelve  pass 
books  from  several  dilierent  banks,  and  in  four  different  names,  but 
all  belonging  to  the  same  individual,  calling  for  sums  aggregating 
.$28,000.  i)ut  up  as  collaterals  for  a  loan.  While  this  shows  that  any 
law  is  lial)le  to  evasion,  it  emphasizes  the  necessity  tor  specific  regu- 
lations as  to  the  reception  of  deposits.— P^xtract  from  address  of  A. 
B.  Hepburn,  Bank  Superintendent  of  New  York,  at  the  American 
Bankers'  Association  in  1882. 


268  PRACTICAL  BANKING, 

for  the  benefit  of  the  depositors.  The  ordinary  banii  performs  some 
service  for  such  as  need  it  in  business,  and  justly  is  paid  for  such 
service.  The  aim  of  the  bank  is  profit— gain  upon  the  capital  which  is 
employed  in  the  work.  The  savings  institution  seeks  to  serve  those 
who  are  not  fitted  by  knoAvledge  and  habit  for  safely  keeping  and  in- 
vesting their  money  when  saved.  The  discount  bank  is  equipped  with 
money,  with  skill  in  business,  with  acquaintance  with  monetary  af- 
fairs, and  offers  to  the  l)usy  managers  of  commerce  and  trade  its  aid 
in  making  exchanges  and  in  all  their  operations  which  require  its  as- 
sistance. The  savings  bank  opens  its  doors  to  savers;  it  receives  and 
permanently  invests  money.  The  bank  opens  its  doors  to  borrowers 
and  users  of  money,  for  pay.  One  serves  by  receiving  and  keeping, 
the  other  serves  by  lending.  One  aims  at  profit,  the  other  never  makes 
profit  an  end;  the  Savings  institution  is  a  receiving  reservoir  from  lit- 
tle springs;  the  bank  is  a  distributing  reservoir  of  accumulated  capital. 
There  ought  to  he,  therefore,  no  antagonism  between  the  Savings 
bank  and  the  bank.  If  the  Savings  bank  is  kept  to  its  original  idea, 
as  it  should  be.  it  will  not  encToach  on  the  domain  of  the  banlv,  and 
the  last  will  by  no  means  come  in  conflict  with  the  Savings  bank.  The 
time  has  been  when  men  had  the  idea  that  the  best  way  to  get  on  in 
the  world  was  to  rob  each  other.  .Tuster  ideas  than  that  now  prevail. 
The  Savings  institution  is  a  conception  which  demonstrates  this 
truth.  It  is  the  reverse  of  the  communistic  notion  recently  prevalent. 
The  commimist  proposes  the  division  of  capital,  the  drone  to  share 
witli  tlie  worker  in  the  accumulation  of  his  production.  The  Savings 
institution  aims  at  making  all  men  producers  and  savers,  too.  It  offers 
the  aid  of  the  strong,  who  can  manage  well,  to  the  weak,  to  receive 
their  small  gains  and  hold  them  securely  against  that  time  when  need 
or  desire  may  require  tne  store  for  prudent  use.  The  Savings  institu- 
tion enlarges  the  number  of  capitalists;  it  reduces  the  army  of  possible 
prodigals,  paupers  and  tramps.  The  communist  is  the  enemy  of  cap- 
ital, for  he  proposes  to  rob  the  man  who  has  money.  The  Savings 
bank  depositor  is  himself  an  owner  of  money.  He  belongs  to  the 
conservatives  by  the  logical  tendency  of  his  position.  In  this  land, 
where  there  is  such  room  for  growth,  such  demand  for  money,  such 
room  for  men  of  the  right  stamp,  the  Savings  institution  is  an  edu- 
cator, is  the  friend  of  capital,  of  order  and  stability,  both  political  and 
social.  Whoever  earns  and  saves,  lengthens  continuously  his  arms  for 
service.  Whoever  earns  and  spends  as  lie  goes  does  not  lengthen  his 
arms,  but  shortens  his  legs  for  running  his  race  in  life.  While  the 
Savings  bank  is  not  organized  to  make  money  it  is  most  profitable  in 
several  ways.  It  accumulates  money;  it  inspires  and  trains  men  to  get 
money  and  to  the  wise  use  of  it;  it  spares  those  who  have  capital  from 
charges  upon  it  for  the  support  of  those  who  might  otherwise  become 
poor;  it  makes  better  men  and  families  and  better  citizens;  it  adds  to 
the  sum  of  National  resourct>s  in  money,  and  adds  to  the  means  for 
advancement  in  material  improvement.  It  is  thus  a  many-sided  bene- 
faction—to those  out  of  it,  as  well  as  to  those  in  it. 


UTILITY   OF   SAVINGS  BANKS.  269 

Third.— The  Savinjis  institutiou  does  not  hoard  money. 

This  is  an  obvious  fallacy.  If  the  depositors  in  such  institutions 
were  to  save  an  amount  of  money  as  hirge  as  they  deposit,  a  great 
part  of  it  woukl  l)e  hoarded.  All  who  have  acquaintance  with  Savings 
banks  know  this.  If  a  panic  comes  upon  the  depositors  in  one  insti- 
tution, or  in  several,  and  money  is  drawn  in  large  sums,  much  of  it  is 
hoarded  and  much  of  it  is  squandered.  After  the  fright  is  over  the 
identical  money  that  was  withdrawn  and  kept  is  often  returned  for 
deposit  months  after  withdrawal.  This  demonstration  of  the  dispo- 
sition of  saving  men  to  hoard  is  always  made  under  these  conditions. 
The  Savings  bank  encourages  the  habit  of  saving.  :Many  of  you,  I 
iiave  no  doubt,  were  born  and  bred  as  boys  on  farms.  You  may  still 
recollect  the  eager  hunt  for  hens'  nests  in  the  hay  mows,  baj'S  and 
scaffolds  of  the  old  weather-stained  barns;  you  will  recollect,  too,  per- 
haps, that  the  nests  require  the  invitation  of  a  "nest  egg"  to  coax 
the  fecund  fowl  to  make  her  diurnal  deposit  in  it.  I  think  that  men 
need  such  solicitation,  too.  The  man  who  is  profligate  while  he  has 
nothing  to  "lay  to,"  will  often  become  stingily  saving  when  he  has  a 
"nest  egg"  to  win  him  from  other  temptations.  Those  who  can  do  this, 
and  would  otherwise  lay  their  gains  in  stockings,  prefer  the  Savings 
bank,  for  money  there  makes  money,  which  this  class  of  men  are 
quick  to  see. 

The  Savings  bank  invests  its  money.  Its  managers  are,  in  theory, 
intelligent  men,  competent  to  make  safe  investments  in  solid  securi- 
ties. The  genuine  Savings  bank  is  conservative,  and  does  not  en- 
courage speculation,  ballooning,  and  fanure  with  disaster.  It  puts 
money  into  circulation,  and  does  not  withhold  it.  It  adds  substan- 
tially to  the  sum  of  active  capital  in  the  country,  which  is  not  less 
useful  because  it  is  permanently  invested.  These  little  savings,  when 
gathered  into  masses  and  discreetly  invested,  serve  great  purposes. 
As  the  tiny  streams  which  trickle  from  hidden  springs  upon  remote 
hillsides  flow  together  and  make  the  willing  power  to  turn  mill  wheels, 
or  to  furnish  the  water  for  the  thirsty  people  of  a  great  city,  so  these 
savings  of  humble  people  and  of  small  owners,  when  aggregated,  be- 
come available  to  build  the  mills,  or  to  buy  the  wheels  for  the  mills, 
or  to  lay  the  pipes  to  convey  the  water  to  the  thirsty  town,  or  to 
help  the  thrifty  saver  to  rear  his  own  house,  or  to  aid  the  State  itself 
when  its  financial  burdens  are  too  great  to  be  discharged  at  once. 

Fourth.— The  Savings  bank  is  one  of  the  best  safeguards  of  prop- 
erty. 

Depositors  in  Savings  banks  are  arrayed  as  a  solid  phalanx  against 
communism,  rioting  and  disorder.  The  facts  are  too  significant  to  be 
disregarded  by  intelligent  men.  Ireland,  Ciermany  and  Russia  to-day 
sliould  admonish  the  American  citizen,  who  has  property,  and  who  is 
a  leader  in  business  and  in  politics,  that  security  and  progress  will  be 
found  in  the  diffusion  of  property  among  the  great  body  of  people,  by 


270  PRACTICAL  BANKING. 

training  them  to  its  acquisition  and  maintenance.  The  Savings  bank 
is  a  fortress  which  resists  the  dangerous  classes.  It  is  garrisoned  by 
men  who  stand  actually  for  their  altars  and  their  fires  on  their  own 
hearthstones. 

In  1S20  the  number  of  savings  bank  depositors  in  the  United  States 
was  8,635,  and  the  savings  amounted  to  $1,138,570.  From  this  time 
forward  the  system  rapidly  developed  until  in  1897  the  depositors 
numbered  5,201,132,  with  deposits  amounting  to  $1,989,376,035.  For 
every  depositor  in  1820  there  were  604  in  1897;  the  amount  of  depos- 
its was  1,700  times  greater  in  the  former  than  in  the  latter  years,  and 
the  average  deposit,  which  was  $131.80  in  1820.  was  $372.88  in  1897. 
The  fact  that  the  average  deposit  has  not  increased  so  fast  in  the 
past  twenty-five  years  has  been  due  to  the  gigantic  growth  of  build- 
ing and  loan  associations,  which  have  also  absorbed  a  vast  amount  of 
the  savings  of  industry  and  thrift. 

The  number  of  Savings  banks  depositors  in  the  world  is  45.796,707, 
with  deposits  amounting  to  the  colossal  sum  of  $6,604,.546,473— an  aver- 
age of  $144.21.  While  the  amount  of  deposits  in  the  United  States 
much  exceeds  that  in  any  other  country,  the  number  of  depositors  in 
some  countries  is  far  greater  than  in  this.  In  the  number  of  depos- 
itors of  small  savings  economical  France  stands  at  the  head  of  the  list, 
with  8,986,631,  having  deposits  amounting  to  $829,783,735.  The  United 
Kingdom  comes  next,  with  7,969,826  depositors,  having  savings  of 
$815,686,750;  and  Prussia  follows  closely,  with  6.255,507  depositors, 
having  $939,757,555  in  the  Savings  lianlvs.  Though  Prussia  has  fewer 
depositors  than  France  and  Great  Britain,  the  amount  of  their  sav- 
ings is  greater  and  the  average  deposit  much  larger. 

The  poorest  depositor  is  the  Hindu,  with  an  average  amount  of 
$43.60  in  the  savings  banks,  while  the  richest  is  the  Newfoundland 
fisherman,  with  an  average  deposit  of  $440.71.  In  Holland  the  rate 
of  interest  on  money  is  so  low  as  to  tend  to  the  discouragement  of 
saving,  and  the  average  deposit  of  the  Dutchman  is  $58.20.  On  the 
other  hand,  the  frugal  Dane  has  an  average  deposit  of  $166  in  the 
savings  bank.  In  Russia  the  development  of  this  system  of  saving 
earnings  is  so  slow  that  no  data  are  given;  but  in  Hungary  the  de- 
posits average  $227.19.  Our  neighbor  of  Canada  has  175,560  deposit- 
ors, with  $57,578,975— an  average  of  $328  in  the  banks;  not  much  be- 
low the  average  in  the  United  States,  and  very  much  above  the  aver- 
age in  France.  A  very  large  portion  of  these  enormous  savings  of  earn- 
ings is  in  gold,  and  nearly  the  entire  amount  is  on  the  solid  gold  basis.* 


*These  facts  are  derived   from  a   statement  of  the  United   States 
Treasury  Bureau  of  Statistics,  September,  1898. 


JANITOR.  271 


CHAPTER  II. 


JANITOR. 


In  order  to  give  the  reader  as  clear  an  idea  as  possible  of  the  in- 
terior workings  of  the  modern  Savings  banli,  we  will  describe  the 
functions  and  tlie  daily  routine  of  each  person  connected  with  one  ot 
these  institutions.    We  will  begin  with  the  janitor. 

Since  seven  o'cloclv,  when  he  relieved  the  night  watchman,  this 
humble,  but  important  functionary  has  been  preparing  the  banlc  for 
the  business  of  the  day.  He  has  swept  and  dusted  the  banking  room, 
seen  that  the  ink,  pens  and  other  appliances  were  provided,  and  has 
stamped  with  the  proper  date  the  books  and  documents  representing 
the  business  of  the  previous  day.  The  tickets,  when  made  out  by  the 
clerks,  are  purposely  left  undated;  when  made  out  by  the  depositors 
there  are  sometimes  errors  or  discrepancies  in  the  date,  therefore  this 
stamping  gives  the  official  date  of  their  passing  through  the  books. 

At  the  opening  of  the  bank  at  nine  o'clock,  the  next  duty  of 
the  janitor  will  be  to  arrange  the  many  account  books  in  their  proper 
places  for  the  business  of  the  day.  During  the  active  business  hours 
he  sees  that  persons  wishing  to  do  business  are  directed  to  the  proper 
department  of  the  bank,  he  attends  to  any  calls  or  messages  be- 
tween those  departments  or  outside  of  the  bank,  he  carries  the  de- 
posits to  the  deposit  banks,  he  copies  letters  or  places  them  in  the 
dies,  sees  that  the  doors  are  opened  and  closed  at  the  proper  hours, 
These  hours  are  from  ten  to  three  daily,  but  on  Mondays  and  Sat- 
urdays the  closing  liour  is  seven  p.  m.* 

Between  nine  and  half  past  the  members  of  the  executive  staff  ot 
the  bank  begin  to  arrive.  The  treasurer,  the  secretary,  the  paying 
teller,  the  receiving  teller  and  the  bookkeepers.  The  duties  of  these 
officials  will  be  described  in  order,  but  first,  we  will  consider  the  person 
for  whose  benefit  and  on  whose  behalf  they  are  acting  in  every  official 
transaction  of  the  day,  namely,  the  depositor. 


*In  New  York  City.     In  Philadelphia  Mondays  and  Thursdays— 
9  to  7. 


273  PRACTICAL  BANKING. 


CHAPTER    11^. 


THE    DErOCITOR. 


As  a  convenient,  though  perhaps  unfamiliar  name,  we  will  call 
our  typical  depositor  John  Smith.  .John  Smith  arrives  at  the  banlv 
soon  after  its  opening  on  the  day  in  question,  having  in  his  possession 
?1,  which,  contrary  to  the  usual  desires  of  mankind,  he  is  anxious  to 
part  with.  He  proposes  to  relinquish  the  possession  of  this  dollar  for 
an  indefinite  time  and  to  place  it  in  the  custody  of  the  bank.  Now, 
what  are  John  Smith's  motives  in  this  eccentric  conduct? 

First.— He  thinks  that  the  dollar  out  of  his  hands  will  be  less  like- 
ly to  be  uselessly  spent  than  in  his  hands,  which  is  incontestable. 

Second.— He  thinks  that  the  dollar  out  of  his  hands  will  be  less 
likely  to  be  lost  or  destroyed  than  if  in  his  possession. 

Third.— He  believes  that,  aggregated  with  a  great  many  thousand 
other  dollars  belonging  to  other  depositors,  this  dollar  of  his  will  pos- 
sess an  earning  power  which,  in  his  pocket,  it  would  entirely  lack. 
These  homely  thoughts  of  John  Smith  represent  or  convey  the  Sav- 
ings banks'  reason  for  existence.  Their  object  is  three-fold.  To  pre- 
vent waste,   to  prevent  loss,   to  give  pro|it. 

Again,  taking  up  the  practical  operations  of  John  Smith's  case 
we  will  suppose  that  this  is  his  first  attempt  at  saving.  As  he  comes 
into  the  bank,  if  intelligent,  he  will  look  about  him,  and  see  a  very 
plainly  expressed  printed  notice,  headed,  "how  to  open  an  account." 
If  unintelligent,  or  uneducated,  he  will  probably  apply  to  the  janitor 
as  a  guide,  philosopher  and  friend,  Avho  shall  give  him  the  necessary 
information  for  becoming  a  member  of  the  numerous  partnership, 
which  owns  the  handsome  building  in  Avhich  he  stands,  and  all  its 
contents.  Following  the  directions  of  the  notice  referred  to,  he  goes  to 
one  of  the  tables  or  desks  on  which  are  writing  materials  and  all  the 
necessary  blank  forms,  takes  a  deposit  ticket,  which  is  printed  on  green 
paper  to  make  it  easily  distinguishable,  and  writes. 

First,  the  amount  of  his  proposed  investment;  second,  his  name; 
third,  his  address,  and  lastly,  the  date. 

It  is  not  usual  in  Savings  banks,  in  general,  that  the  tickets,  either 
for  drawing  or  depositing,  should  l)e  made  out  by  the  depositor.  This 
bank  finds  it  in  every  respect  i)referable  so  to  do.  The  average  style 
of  writing  is  better  than  would  probably  be  the  case  if  made  out  by 


THE  DEPOSITOR.  273 

a  clerk  working  rapidly,  bocausc  oach  depositor  naturally  takes  paius 
Avitli  his  own  ticket.  There  is  the  further  great  advantage  that  we 
have  his  evidence  as  to  the  amount  and  circumstances  in  case  of  fu- 
ture dispute.  It  is  too  much  the  practice  in  Savings  banks  to  assume 
that  the  depositor  is  uneducated  and  ignorant.  The  writer  once  men- 
tioned this  idea  of  tickets  made  out  by  the  depositors  themselves  in 
the  largest  of  our  Savings  banks,  and  was  answered,  "well  out'  out 
of  every  three  of  our  depositors  is  unable  to  write."  He  inquired 
whether  tliis  proportion  was  obtained  by  actual  count  or  by  guess. 
On  being  informed  that  it  was  merely  a  guess  he  suggested 
that  a  count  be  made  of  a  few  pages  of  the  signature  book,  and 
it  was  found  that  the  proportion  was  one  in  nineteen;  that  is,  eighteen 
able  to  write,  to  one  who  is  obliged  to  make  a  cross.  In  our 
bank  the  proportion  is  about  one  to  twenty.  It  is  found  also 
that  the  depositors,  when  once  accustomed  to  this  more  dignified  way 
of  doing  business,  far  prefer  it.  They  feel  as  if  they  were  treated  with 
more  respect,  not  as  inferiors  or  subjects  of  charity  and  finally  there 
is  a  great  saving  of  time  and  error  for  the  receiving  teller. 

;KS"Write  the  amount  in  plain  figures;   dollars4(S=        $ 
above  the  word  "DoUars,"  cents  above  the 
word  "Cents."  


IiOLLARS. 


UNION    DIME    SAVINGS    INSTITUTION, 

Deposit     on  Book  No.. 

Name  on  Book, .  


Present  Address Date 


1,33'  bills  straight  in  the  book,  facing  one  way. 
If  you  deposit  checks  or    anything   besides 
money,  write  particulars  on  the  back  of  ticket. 
See  if  the  entry  is  correct  in  the  book. 


Received  by Entered  in  pass-book  by. 


This  he  carries  to  the  window  occupied  by  the  receiving  teller.  He 
hands  the  ticket  and  the  dollar  to  that  official,  and  also  names  the 
amount  aloud,  "one  dollar,"  or  if  English  be  not  his  native  language, 
he  is  perfectly  at  liberty  to  say  "ein  thaler,"  "un  dollard."  "uno  scudo," 
"un  peso,"  or  whatever  equivalent  expression  in  his  own  vernacular 
may  signify  his  intent.  Now  the  functions  of  the  receiving  teller  be- 
gin, and  Smith  is  only  informed  that  he  must  next  step  to  the  signa- 
ture desk.  Here  lies  a  large  book  on  a  revolving  desk,  and,  like  a 
guest  in  a  hotel,  he  is  requested  to  write  his  name  and  address,  or  if 
unable  to  write,  his  name  is  written  for  him,  and  he  makes  his  mark, 
but  instead  of  getting  the  number  of  his  room,  the  number  of  his  pass 
book  is  printed  opposite  the  line  on  which  he  writes.    The  clerk,  whom 


274  PRACTICAL  BANKING. 

he  now  sees,  obtains  from  him,  besides  his  name  and  address,  the  fol- 
lowing information:  Where  do  you  liyeV  What  is  your  age?  Are 
you  married,  single  or  a  widower?  Are  you  colored?  What  is,  or  was, 
your  father's  name?  Mother's  name?  Wife's  name?  Occupation? 
Where  from? 

The  particular  points  of  information  obtained  from  the  depositor 
vary  in  different  banlvs.  The  place  of  nativity  is  talien  by  some,  and 
this  would  seem  an  excellent  test  of  identity.  The  color  of  the  eye, 
as  being  the  one  bodilj'  characteristic  which  is  unchangeable,  is  also 
taken  by  some  institutions.  Perhaps  in  the  future  photography  may 
come  to  our  aid,  and  instantaneous  photographs  of  small  size  be  taken 
on  the  occasion  of  the  first  deposit. 

The  entries  in  the  signature  book  having  been  made,  the  clerk 
again  asks  Mr.  Smith  "how  much  money  did  you  deposit?"  and  on 
being  answered  correctly  hands  him  the  pass  book. 

This  pass  book  has  stamped  upon  it,  both  on  the  outside  and  inside, 
the  same  number  which  stands  opposite  the  depositoi''s  name  in  the 
signature  book,  and  this  number  will  hereafter  be  the  key  to  all  the 
dealings  of  Mr.  Smith  Avith  the  bank.  It  is  Avritten  on  the  deposit 
ticket,  it  is  written  opposite  the  first  entry  in  the  books  of  the  bank,  it 
stands  at  the  head  of  his  ledger  account.  (Page  273.)  These  consecu- 
tive numbers  are  printed  wherever  they  possibly  can  be,  to  avoid  mis- 
takes, but  as  Smith  will  very  probably  forget  the  number  of  his  book, 
especially  if  he  is  a  careless  person  and  loses  the  book,  it  is  necessary 
somewhere  to  be  able  to  find  him  by  name.  Therefore,  the  sig- 
nature clerk  has  one  more  duty  to  perform  in  connection  with 
Smith's  account.  Lying  opposite  him  is  a  pile  of  cards  about  one 
inch  by  three.  On  the  top  one  of  these,  which  contains  Smith's 
number,  the  signature  clerk  writes  very  plainly  John  Smith.  This,  as 
will  be  seen  afterwards,  serves  as  an  entry  in  the  alphabetical  index. 

When  next  Mr.  Smith  has  any  sum  of  money  to  deposit,  he  will 
make  out  and  sign  his  deposit  ticket  as  before,  except  that  he  now 
knows  the  number  of  his  book,  and  will  insert  that  in  the  proper 
place.  Perhaps  he  will  find  several  other  customers  awaiting  their 
turn  at  the  receiving  teller's  window.  In  this  case,  he  must  fall  in  at 
end  of  the  line  in  proper  order.  But  Smith  will  not  go  on  depositing 
forever.  His  deposit  of  savings  has  only  half  performed  its  mission 
while  it  is  lying  in  bank.  Ultimately  it  is  to  be  used.  When  Smith 
has  become  sufficient  of  a  capitalist  to  invest  his  money  at  his  own 
discretion,  then  he  will  wish  to  withdraw  his  accumulations.  But  fre- 
quently before  that  time  he  wearies  of  well  doing,  or  he  miscalculates 
the  amount  which  he  can  spare  from  his  current  expenditure,  and  it 
is  necessary  for  him  to  withdraw  a  portion,  or  the  whole;  or  this  ne- 
cessity may  be  caused  by  removal,  by  calamity,  by  sickness,  or  by 
death.  In  this  case  he  finds  his  way  to  the  paying  teller's  window, 
having  first  filled  out  a  ticket  of  another  form,  the  draft  ticket.  This 
he  presents,  and  again  names  the  sum  to  be  withdrawn.    After  proper 


THE  DEPOSITOR. 


275 


scrutiuy,  whicli  will  bi"  dt'seribed  uiuU'r  Ibo  payiiifi  teller's  duties,  his 
book  is  haudod  lo  him  again,  and  between  Us  leaves,  instead  of  the 
draft  ticket,  is  the  money  desired.  If  this  exhausts  his  account,  the 
form  called  a  closing  draft  is  used.  In  this  case,  the  pass-book  is  sur- 
rendered, and  is  tiled  a\\-ay  according  to  its  numerical  order.  But,  if 
Mr.  Smith  continues  his  deposits  for  a  sufficient  length  of  time,  he  will 
be  entitled  to  his  share  of  the  earnings.  Any  amount  over  $5,  partici- 
pates in  the  prolits  of  the  concern.  It  is  considered  that  the  use  of  any 
sum  less  than  that  does  not  more  than  pay  for  stationery  and  labor. 
Semi-annually,  a  few  days  after  the  first  of  January,  and  a  few  days 
after  the  first  of  July,  the  book  may  be  presented  for  the  purpose  of 
entering  therein  the  dividends  to  which  he  is  entitled.     In  the  major- 

_^    Write  in  this  corner  tlie  amount  received,  in  plain  figures;         -^^^  j 
*^dollars  above  the  word  "Dollars,"  cents  above  the  word  "Cents."  **^  * 


We  cannot 

pay  without 

the  Book. 

■T  The  Number 
S  is  on  the  cover 
*"     of  the  Book. 

00 

?>  Write  here  the 
^         Amount 
o  very  plainly  in 
^        WORDS. 

Always  sign 

as  you  did  at 

first. 


Nbw  York 


Received  from  the 

UNION  DIME  SAVINGS  INSTITUTION,  on  Book  No. 


Dollars. 


Signature 
Present  Address,  . . 


Individually  or  as  Trustee,  as  the  book  reads. 


Previous  Balance        Paid  by        Entered  by        Sig.  exd.  by 


ity  of  cases,  Smith  takes  it  for  granted  that  the  calculation  of  this 
dividend  is  correct,  though  occasionally,  he  scrutinizes  it  very  care- 
fully. 

The  conditions  of  this  dividend  in  many  institutions,  are  these: — 
Deposits  begin  to  participate  in  the  dividend  on  the  first  day  of  each 
quarter,  but  they  only  are  entitled  to  it  if  they  remain  till  the  end  of 
the  half  year;  thus,  money  which  is  in  bank  on  the  first  day  of  Jan- 
uary, provided  it  remains  until  the  first  day  of  July,  receives  a  half 
year's  dividend,  but  if  withdrawn,  even  during  June,  receives  noth- 
ing. If  in  bank  on  the  first  of  April,  and  remaining  until  the  first 
of  July  untouched,  it  draws  a  quarter's  dividend.  Furthermore,  the 
first  few  days  of  each  quarter,  may  be  allowed  to  the  depositor  as  a 
sort  of  grace,  the  limit  being  10  days,  at  the  half  year,  and  three  days 
at  the  quarter. 

The  dividend  is  now  usually  spoken  of  as  interest.  As  the  rate  in 
the  State  of  New  York  is  not  promised  in  advance,  but  depends  upon 
the  profits  of  the  half  year,  the  term  dividend,  is  considered  more 
proper,  but  considering  that  it  depends  on  the  time,  it  is  in  that  re- 
spect, strictly  speaking,  interest.  The  word  int(>rest-dividend  would 
seem  to  be  the  most  exact. 


276  PRACTICAL  BANKING. 

A  few  banks  in  New  York  allow  interest  to  begin  on  the  tirst  day 
of  each  month,  instead  of  the  tirst  day  of  each  quarter,  but  with  the 
same  provision  as  to  forfeiture  in  case  of  withdrawal  before  the  end 
of  the  half  year.  In  Pennsylvania,  in  some  parts  of  New  England, 
and  in  Great  Britain,  money  bears  interest  for  every  full  calendar 
month  during  which  it  has  remained  undisturbed,  and  is  credited  only 
once  a  year,  unless  the  account  is  closed. 

The  current  rate  at  present  (1898)  is  wavering  between  four  per 
cent,  and  three  per  cent.  Ten  years  ago,  the  current  rate  for  Savings 
deposits  was  six  per  cent.,  but  the  general  investment  rate  has  greatly 
lowered.  Some  banks  make  a  distinction  in  rate  for  different  amounts. 
For  example,  four  per  cent,  on  amounts  not  exceeding  ^1,000,  and 
three  per  cent,  on  any  excess  over  $1,000.  Or  on  another  plan,  less 
than  $500  receives  four  per  cent.,  but  if  the  whole  deposit  exceed  $500, 
only  three  per  cent,  is  paid  on  the  whole.  On  this  manifestly  unjust 
plan,  a  depositor  whose  book  has  amounted  to  $501,  receives  absolutely 
less  of  the  profits,  than  he  whose  aggregate  is  only  .$499.  It  would  be 
better  to  preserve  rigorously  a  limit  as  to  the  maximum  which  any 
depositor  shall  accumulate,  or  which  he  shall  deposit  in  a  given  period, 
and  then  divide  the  profits  pro  rata,  on  all  sums. 

If  interest  is  not  withdrawn,  it  will  itself  draw  interest  as  a  de- 
posit. The  more  Ignorant  depositors,  however,  frequently  desire  to 
draw  their  interest,  even  if  they  immediately  re-deposit  it,  forfeiting 
thereby  a  quarter's  interest  on  it.  Their  intellect  in  money  matters  has 
not  yet  been  sufficiently  developed  for  them  to  grasp  the  idea  that 
there  can  be  an  increase  of  money  value,  without  a  visible  amount  or 
representative  having  touched  their  hands. 

Besides  the  individual  deposit  which  John  Smith  or  Mary  Smith 
may  have  made  in  their  own  names,  there  are  various  other  forms. 
Frequently,  money  is  deposited  "John  Smith,  in  trust  for  William 
Jones,"  or  "John  Smith,  Trustee  for  William  Jones."  Often  this  trust 
is  to  some  extent  a  fiction,  the  legal  effect  of  Avhich  is  that,  upon  the 
deatli  of  Smith,  Jones  will  i-eceive  the  deposit  without  the  formali- 
ties and  expense  of  administration.  Frequently,  also,  it  is  intended 
as  an  evasion  of  that  rule  which  makes  a  different  rate  of  interest  for 
higher  sums.  The  thrifty  John  Smith  will  have  the  maximum  amount 
in  his  own  name,  and  scattei'ed  through  the  books  of  the  bank  you  will 
again  meet  him  as  trustee  for  his  wife,  trustee  for  each  of  his  chil- 
dren, trustee  for  his  son-in-law,  etc.  Accounts  may  be  opened  in 
two  names  jointly,  as  John  Smith  or  Mary  Smith.  Sometimes  John 
Smith  and  IMary  Smith.  In  the  former  case  the  book  is  mai'ked  "To 
be  drawn  by  either  signature.  In  the  latter  case,  "To  be  drawn  by 
both  signatures  only."  The  money  of  benevolent  and  other  associations 
is  frecpiently  accepted  by  the  Savings  banks  on  deposit,  generally  with 
special  regulations  as  to  the  officials  who  shall  have  control  of  the 
funds.  A  sj  eci  il  signature  book  is  provided  for  societies,  in  which 
is  allowed,  not  a  single  line,  but  an  entire  page,  so  as  to  provide  for 
changes  in  officers. 


THE  DEPOSITOR.  277 

Smith  occasionally  loses  his  book,  and  it  is  then  his  duty  to  re- 
port it  to  a  cleric  in  charge  of  that  department.  It  is  usually  required 
that  he  :i(]v(itise  its  loss  for  a  certain  number  of  times  in  one  of  the 
daily  papers.  The  reason  of  this  precaution  is  that  he  may  have  as- 
signed his  claim  to  the  moneys  in  the  book  to  an  innocent  holder,  and 


Form  A, 
Dec.  '98.    [428] 


Account  No  

Signature  Blank. 

1.     sign  your  name  as  you  usually  write  it,  in  the  little  space  below,  with  ink: 


Sign  inside 
the  space 
with  ink. 


I    HEREBY    SIGNIFY   MY    ASSENT   TO   THE   REGULATIONS   OF   THE 
UNION    DIME    SAVINGS   INSTITUTION. 


If  a  Trust  account,  add  to  your  name,  "  in  Trust  (or 

2.     Now  give  the  following  particulars,  for  identification  only: 
Address 


Age   Occupation,  if  any, . 


Names  of  Par- 
ents: 

Name  of  Hus- 
band or  Wife, 
if  married: 


3.     Mail  this  as  soon  as  possible,  addressed  thus: 


Union  Dime  Savings  Institution, 

Broadway,  32d  St.  and  Sixth  Ave., 

New  York,  N.  Y. 


Form  of  Savings  Bank  Ledger  Account. 
103,454.     John  Smith. 


1884. 

Drafts. 

Deposits  and  Interest. 

Balance. 

January 

10 

10 

February 

3 

20 

30 

April 

1 

5 

25 

May 

/ 

15 

62 

40 

62 

be  thus  endeavoring  to  obtain  payment  twice.  If  the  book  is  not  then 
returned  he  is  required  to  execute  a  bond  of  indemnity,  with  a  surety, 
making  the  l)ank  good  against  any  loss  from  adverse  claims,  and  to 
make  an  aftidavit  as  to  the  eireumsiances  of  the  loss. 


278  PRACTICAL  BANKING. 

When  Smith  has  gone  over  to  the  great  majority  of  Smiths  his  legal 
representatives  will  ultimately  appear  at  the  bank,  presenting  letters 
testamentary,  or  letters  of  administration  from  the  Surrogate  of  the 
county.  Generally,  upon  these  being  admitted  as  correct,  the  money 
is  transferred,  without  loss  of  interest,  to  a  new  book  in  the  name  of 
the  executors  or  administrators,  or  paid  to  them  in  cash.  Sometimes 
their  names  are  simply  added  at  the  head  of  the  original  pass  book,  but 
in  the  bank  which  we  are  describing,  it  is  a  rule  that  no  change  in  the 
heading  of  an  account  shall  be  made,  except  by  transfer  to  a  new 
book,  lest  unauthorized  changes  should  be  made,  or  alleged  to  have 
been  made,  by  the  employees.  Such  changes  are  sometimes  desirable, 
for  example,  in  case  of  a  woman  who  has  changed  her  name  by  mar- 
riage, but  in  this  case  she  may  continue  to  be  recognized  as  a  depositor 
by  her  former  name. 

The  depositors  of  our  bank  are  of  all  ages,  occupations,  religions, 
nationalities,  colors  and  social  grades,  the  children,  from  ten  years  up- 
wards, are  quite  as  exact  and  business-like  in  their  transactions  as 
their  seniors,  and  the  habit  of  carrying  on  a  Savings  bank  account  is 
quite  prevalent  among  the  children  of  all  classes. 

As  the  official  with  whom  the  depositor  comes  first  and  chiefly  in 
contact,    we   will  describe  the   duties   of   the   receiving   teller. 


HECEIVING   TELLER.  •  279 


CHAPTER   IV. 
RECEIVING  TELLER. 

After  the  doors  of  the  vault  have  been  opened  in  the  morning  he 
takes  out  tlie  large  tin  box  containing  his  casli,  and  closed  by  his  own 
combination  lock.  Placing  the  bills  in  the  compartments  of  his  drawer 
according  to  denominations,  so  as  to  be  able  to  give  change,  if  neces- 
sary, and  arranging  his  tray  of  silver  conveniently,  he  is  ready  for 
operation.  As  has  already  been  said,  the  depositor  hands  in  his  pass 
book,  between  the  leaves  of  which  is  the  money,  accompanied  by  a  de- 
posit ticket.  The  tirst  duty  of  the  teller  is  to  count  the  money.  To 
facilitate  this,  depositors  are  requested  to  have  their  bills  neatly  laid 
out  facing  in  one  direction,  and  the  same  denominations  together.  The 
teller  usually  counts  the  amount  twice.  He  then  sees  that  the  amount 
as  stated  on  the  ticket  is  coiTect.  He  next  sees  that  the  depositor  has 
correctly  stated  the  number  of  the  account;  then  he  proceeds  to  make 
the  entry  in  the  pass  book  on  the  next  vacant  line,  writing  the  date, 
the  amount  in  words,  and  extending  the  amount  in  figures  into  the  col- 
umn headed  "deposit."  Then,  with  another  glance  at  the  ticket  he 
sticks  the  latter  on  a  spindle,  and  hands  the  book  to  the  depositor, 
again  repeating  the  amount. 

This  process  is  very  l)rief,  and  detains  the  depositor  less  than  any 
other,  but  in  many  banks  it  is  thought  that  further  entries  should  be 
made  before  the  depositor  leaves  the  bank.  In  many,  a  different  clerk 
enters  the  amounts  from  the  pass  book  into  the  deposit  book,  which  will 
soon  be  described,  and  then  hands  out  the  book.  In  others,  the  pass 
book  is  taken  direct  to  the  ledger,  and  the  amount  posted  there  directly 
from  it.  The  object  of  these  precautions  is,  first,  to  insure  accuracy, 
and,  second,  to  check  embezzlement  on  the  part  of  the  receiving  teller. 
It  is  always  more  dithcult  to  prevent  embezzlement  on  the  part  of 
the  receiving  agent  than  of  a  disbursing  agent,  because  the  latter  is 
compelled  to  produce  vouchers  for  all  his  expenditures,  but  unless 
guarded  in  some  way  the  receiver  may  withhold  or  destroy  the  evi- 
dence of  his  having  received.  There  are  two  classes  of  methods  em- 
ployed to  prevent  this  in  moneyed  institutions;  one  is  that  which  makes 
another  employee  cognizant  of  his  doings;  and  another,  that  which 
makes  that  known  to  tlie  pultlic.  It  is  manifest  that  there  is  no  abso- 
lute security  in  the  former  method.     If  you  multiply  the  number  of 


280  PRACTICAL   BANKING. 

hands  through  which  .a  transaction  passes,  you  somewhat  diminish  the 
probability  of  fraud,  but  there  is  always  the  possibility  of  collusion; 
but  collusion  with  the  chance  public,  whose  interests  are  directly  op- 
posite, is  impossible.  Therefore,  the  writer  considers  that  the  only  se- 
curity against  embezzlement  lies  in  making  the  acts  of  a  receiving 
agent  to  some  extent  piiblic,  as  the  bell  punch  does  on  the  horse-car 
lines. 

In  the  particular  bank  which  we  have  in  mind  a  new  mechanical 
device  has  been  introduced  which  makes  as  nearly  as  possible  an  ab- 
solute check  upon  the  accuracy  and  integrity  of  the  receiving  tellei'. 
The  machine  has  been  called  "an  electrical  double-entry  bookkeeper," 
for  it  debits  the  institution  and  credits  the  depositor,  always  making 
the  debit  and  credit  exactly  equal.  If  the  transaction  is  a  deposit  of 
$299.37  on  account  No.  204,793,  the  teller  first  touches  the  proper  keys 
on  a  keyboard  in  front  of  the  machine.  Through  openings  in  the  body 
of  the  machine,  certain  figures  then  appear,  so  that  the  following  is 
shown. 

Amount.  No.  of  Account. 

Cts 


2I9I9I3  I  7 


2|o|4    7|9   3 


The  teller  looks  at  this,  and  sees  that  it  is  coi'rect;  if  any  figure  is 
wrong,  he  can  at  this  stage  restore  it  to  zero  and  then  strike  the  cor- 
rect figure;  no  harm  done.  He  next  places  the  pass  book  in  a  clamp 
on  a  movable  platen,  (or,  still  better,  he  has  placed  it  there  already,) 
and  punches  the  platen  from  him  as  far  as  it  will  go.  That  is  all  he 
has  to  do:  electricity  does  the  rest.  Instantly  the  current  seizes  upon 
the  mechanism,  there  is  a  hustle  of  levers,  a  revolution  of  wheels,  a 
convulsion  of  mysterious  parts  and  the  double  entry  has  been  made. 
Three  things  have  happened. 

1.  In  the  depositor's  pass  book  legible  and  elegantly  printed  in 
permanent  ink,  instead  of  the  usual  hurried  writing: 

29  JAN  1898  REC'D  $299.37 

2.  On  a  tape  in  the  machine  under  lock  and  key  is  the  entry, 

$*299.37         204793 

the  latest  one  of  the  series  begun  at  the  opening  of  the  day's  business. 
This  takes  the  place  of  the  process  of  "writing  up  tickets,"  which  for- 
merly took  several  hours  daily. 

3.  Looking  into  the  top  of  the  machine  through  a  glass  we  see  a 
register,  or.  totalizer,  exhibiting  many  millions  of  dollars.  When  the 
wheels  revolved  and  performed  the  two  i)rintings  just  mentioned,  this 
register  might  have  been  seen  to  change    so    that     its     reading     now 


RECEIVING  TELLEIl.  S8l 

shows  $299.37  nioro  than  before.  Thus,  if  these  were  the  figures  be- 
fore this  deposit,  representing  the  total  received  since  the  organiza- 
tion of  the  baulv, 

126,644,000.00 

the  present  reading  is 

126,644,299.37 

If  from  the  total  at  the  close  of  the  day  we  subtract  what  it  was 
at  the  beginning,  it  is  manifest  that  we  know  what  are  the  total  re- 
ceipts for  the  day,  without  any  more  trouble.  It  is  also  evident  that 
every  sum  credited  in  the  pass  book  of  any  depositor  must  infallibly 
have  been  printed  also  on  the  tape,  and  what  is  even  more  important 
has  advanced  the  figures  of  the  total  register  by  exactly  the  same 
amount.  Hence  error  or  fraud  through  discrepancies  between  the 
pass  book  entry  and  the  entries  in  the  books  of  the  bank  are  effect- 
ually prevented. 

At  the  close  of  the  day,  the  tape  as  far  as  printed  upon  is  taken  out 
of  the  machine,  cut  into  lengths  and  pasted  into  a  "Mark  Twain"  scrap 
book.  The  entries  are  thus  available  for  tracing  errors  in  the  book- 
keepers' work. 

Oidy  black  ink  is  used  or  kept  at  the  receiving  teller's  desk.  The 
reason  for  this  will  l)e  seen  when  speaking  of  the  paying  teller.  It  is 
the  duty  of  the  receiving  teller  to  explain  the  regulations  of  the  bank, 
and  give  all  information  to  persons  inquiring  with  reference  to  open- 
ing accounts;  to  explain  the  system  of  deposit  tickets  to  those  who 
are  not  acquainted  with  it,  and,  in  case  of  illiterate  persons,  to  assist 
them,  or  to  perform  it  for  them.  As  the  first  impressions  of  depositors 
will  be  formed  from  their  intercourse  with  him,  it  is  essential  that  he 
should  be  perfectly  courteous  and  of  even  temper.  He  will  frequently 
meet  with  depositors  who  will  endeavor  to  defraud  him— who  will  pass 
in  $99,  for  example,  and  a  ticket  made  out  for  $100,  and  when  told  of 
the  error,  will  pull  the  other  $1  bill  out  of  his  pockets,  saying  very  in- 
nocently, "Is  that  so?  I  must  have  counted  wrong,"  hoping  that  once 
in  a  thousand  times  the  teller  may  make  the  same  misiaKe. 

The  receiving  teller  should  be  an  excellent  judge  of  money,  an  ac- 
complishment which  is  not  so  needful  for  the  paying  teller.  In  fact, 
although  in  business  banks  the  paying  teller  is  the  higher  officer,  it 
would  seem  as  though,  in  the  Savings  bank,  the  receiving  teller's  po- 
sition were  the  most  important.  During  the  day  the  receiving  teller 
may  be  called  upon  to  supply  funds  to  other  departments  of  the  bank. 
The  paying  teller  regularly  keeps  his  cash  filled  from  that  of  the  receiv- 
ing teller.  He  draws  this  in  even  amounts,  making  requisition  for  so 
many  thousand  dollars  in  such  denominations;  therefore,  when  not 
otlierwise  occupied,  the  receiving  teller  should  package  up  his  bills 
with  paper  strips  properly  marked.  An  excellent  rule  for  this  is 
always  to  put  50  pieces  in  one  package,  so  that  a  package  of  $2  bills 
li) 


282  PRACTICAL  BANKING. 

is  known  to  contain  $100,  and  a  package  of  $5  bills  $250,  etc.  If  the  re- 
ceipts are  largely  exceeding  the  expenditures,  or,  as  it  is  frequently  ex- 
pressed, "the  bank  is  running  ahead,"  the  Treasurer  may  make  requi- 
sition in  a  similar  manner  for  a  part  of  the  receiving  teller's  funds  to 
deposit  in  bank.  Checks,  drafts,  money  orders,  and  similar  documents 
are  by  this  bank  freely  taken  on  deposit  and  credited  as  cash,  but 
with  a  particular  mark  which  indicates  the  nature  of  the  funds,  and 
nothing  is  ever  paid  against  such  deposits  until  they  have  been  act- 
ually collected.  Some  of  the  more  conservative  banks,  probably  from 
force  of  habit,  rather  than  otherwise,  refuse  altogther  to  receive 
checks  on  deposit,  but  as  the  irresistible  tendency  of  the  age  is  to  make 
all  payments  of  any  moment  through  the  agency  of  banks,  the  rule  will 
ultimately  prevail  that  checks  are  prima  facie  cash.  Towards  the  close 
of  the  business  day,  or  whenever  he  has  leisure,  the  receiving  teller 
gets  ready  the  tickets  representing  the  transactions  of  the  day,  in 
order  to  have  them  written  up  in  his  book  called  the  "Deposit 
Book,"  unless  the  double-entry  machine  is  in  use,  in  which  case  this 
work  is  saved.  This  book  simply  contains  number  of  account  and 
amount  of  deposit.  (See  page  273.)  As  we  have  remarked,  it  may 
very  properly  be  written  up  from  the  pass  books  before  tney  leave 
the  bank,  especially  if  the  business  is  sufliciently  voluminous  to  give 
the  receiving  teller  an  assistant  who  can  attend  to  this  and  also  to 
the  signatm'e  book. 

For  convenience,  the  tickets  are  frequently  assorted,  proximately 
into  numerical  order,  before  writing  them  up.  The  only  advantage  in 
this  is  that  it  facilitates  searching  for  error,  if  any,  in  the  next  day's 
"Bookkeeper's  proof."  There  are,  on  the  other  hand,  some  advantages 
in  entering  the  tickets  in  the  exact  order  in  which  they  were  received, 
because,  sometimes,  in  the  case  of  dispute,  this  enables  us  to  find  the 
names  of  the  depositors  who  were  standing  near  at  the  time  the  ques- 
tioned deposit  was  made,  and  also  enables  us  to  ascertain,  proxi- 
mately, the  hour  of  the  day  when  said  transaction  took  place.  The  re- 
ceiving teller  is  required,  by  an  inflexible  rule,  to  turn  over  to  the 
Treasurer,  before  three  o'clock,  all  checks,  drafts,  or  other  cash  items, 
not  actually  money  or  currency,  so  that  the  cash  balance  carried  over 
night  by  the  teller  is  bona  fide  cash,  and  available  for  payments.  The 
liberty  of  holding  checks  over  night,  or  memoranda,  in  place  of  cash, 
may  very  easily  lead  to  a  fictitious  balance  covering  a  real  shortage. 
The  checks  received  are  entered  in  a  special  book.  Avhich  gives  the 
name  of  the  bank,  the  name  of  the  maker,  the  name  of  the  depos- 
itor from  whom  received,  and  the  amount.  Shortly  before  three 
o'clock  the  janitor  goes  to  the  desks  of  the  various  tellers, 
and  asks  them  for  their  checks  and  check  lists.  He  counts  the  items 
received  from  each  one,  and  brings  them,  with  their  contents,  to  the 
Treasurer,  who  receipts  in  the  margin  of  the  check-list  book.  Now 
the  day's  work  is  over,  and  it  is  the  teller's  duty  to  "balance  his  cash." 
Ills  deposit  book  is  fully  written  up  and  footed.    His  transactions  with 


RECEIVING  TELLER.  283 

other  departments  of  the  bank  have  been  noted  by  him  as  they  oc- 
curred, and  are  vouched  for  by  receipts  talien  and  given.  He  there- 
fore has  all  the  elements  of  a  balance,  except  the  verification  of  the 
amount  on  hand.  He  counts,  firist,  his  packages  of  biils,  assuming  the 
contents  of  the  packages  in  themselves  to  be  correct;  next  his  loose 
bills,  and  last  his  coin.  He  is  now  prepared  to  make  up  and  prove  his 
report  to  the  Secretary.  This  contains  three  columns — "debits,"  "cred- 
its," and  "cash  on  hand."     (See  form,  pagei£4.) 

In  the  debit  column  is  entered,  first,  the  amount  in  his  hands  at 
the  beginning  of  the  day;  second  the  amount  received  from  depositors, 
being  the  total  of  the  deposit  book.  He  also  states,  as  a  matter  of  sta- 
tistics, tlie  number  of  dei)ositors,  and  also  the  number  of  accounts 
opened. 

Then  follow  receipts  from  other  sources,  either  from  the  treasurer 
or  from  the  other  tellers,  but  this  is  exceptional,  for  the  receiving 
tellei',  as  such,  is  constantly  parting  with  liis  money  inside  of  the  bank, 
and  has  no  occasion  to  receive  from  others.  It  might  have  been  men- 
tioned, that  in  our  banlv,  more  as  a  matter  of  convenience  than  other- 
wise, expense  vouchers,  unless  paid  by  check,  are  paid  by  the  receiv- 
ing teller  from  his  cash,  after  receiving  the  approval  of  the  treasurer 
or  secretary.  It  is  considered  that  there  is  an  economj*  of  labor  in 
thus  relieving  the  receiving  teller  of  part  of  his  money,  making  so 
much  less  for  the  paying  teller  to  recount. 

On  the  credit  side  of  the  teller's  report  is,  first,  "amounts  paid  to 
depositors,"  but  unless  he  has  acted  during  the  day  as  paying  teller, 
the  receiving  teller  will  have  nothing  to  record  here.  Next  come 
amoimts  paid  to  the  treasurer.  This  will  embrace  the  checks  turned 
over  by  him.  the  currency  turned  over  to  be  deposited,  expense  vouch- 
ers paid  on  the  approval  of  the  treasurer  or  secretary.  In  the  two 
former  cases,  he  has  a  receipt  on  the  margin  of  his  check  list.  In  the 
latter  case,  he  holds  tlie  authorization  on  the  voucher.  Next 
come  payments  to  other  tellers.  This  is  normally,  of  course,  to  the 
paying  teller.  The  last  item  of  credit,  which  is  balance  on  hand,  is 
not  inserted  until  the  cash  has  been  counted.  The  results  of  the 
count  are  written  in  the  last  column  under  the  heads  "Packaged  bills," 
"loose  bills."  "coin."  Then  the  aggregate  of  these  is  placed  opposite 
the  words  "actual  cash  on  hand."  Now  this  may  not  be  the  correct 
amount  which  should  lie  on  hand.  If  in  excess,  the  cash  is  said  to  be 
"over,"  if  deficient,  it  is  said  to  be  "short." 

A  line  is  provided  for  each  of  these  contingencies,  and  if,  after 
thorough  search,  the  cash  is  '  short,"  the  amount  of  deficiency  is  en- 
tered on  the  proper  line,  and  added  to  the  actual  cash  on  hand,  the 
result  being  carried  into  the  credit  column,  last  line.  If  the  cash  be 
"over,"  the  amount  of  excess  is  similarly  entered,  but  subtracted. 
The  timounts  of  the  deliit  and  cn-dit  columns  should  now  be  equal. 
This  report,  signed  by  the  teller,  is  handed  to  the  secretary,  who  ex- 
tracts from  it  the  information  necessary  for  his  books,  which  he  will 


284 


PRACTICAL  BANKING. 


hereafter  test,  aud  marks  it  "examined  and  entered. 


secretary." 


and  places  it  on  file.  The  teller  begins  his  report  for  the  following 
morning  with  the  balance  on  hand,  as  corrected.  During  the  following 
day,  unless  he  succeeds  in  finding  the  error,  he  is  required,  in  case 
of  an  "over,"  to  charge  himself  by  ticket,  approved  by  the  secretary, 
with  the  amount,  placing  it  to  the  credit  of  an  account  called  "excess 
account,"  from  which  it  may  ultimately  be  transferred  to  the  credit  of 
the  rightful  owner  when  ascertained.  In  case  of  a  "short,"  he  is 
charged  in  an  account  called  his  "deficiency  account,"  and  has  ulti- 
mately to  refund  the  amount  to  the  bank. 

Besides  the  daily  report  of  all  transactions,  the  teller  makes  a 
monthly  report  of  his  transactions  with  depositors  alone,  for  more  con- 
venient examination  l)j'  the  auditing  committee. 


Form  of  Teller's  Daily  Report. 

Union  Savings  Bank— Second  Teller's  Repopt,  March  1,  1884. 
Dr.  Cr.  Statement  of  Cash. 


8,619  75 
9,764  17 

100 


18,483  92 


Balance  brought  forward 

(134-16)  Depositors  (17-3) 


Treasurer  . 
Teller 


Balance  carried  forward. 


826  13 


179  07 
5,000 


12,478  72 


18,483  92 


Packaged  Bills 

Loose  Bills 

Coin 

Actual  cash  on  hand 

Short 

Over 


10,500 
1,710 
269  72 


12,479  72 
1 


12,478  72 


hereby  certify  that  the  above 
report  is  true  and  complete. 


E.  D.  J.- 


Teller. 


Examined  and 
entered. 


Sec. 


Cash  on  hand  examined  and  found  as 
stated. 


J-  Committee. 


THE  PAYING  TELLER.  285 


CHAPTER  V. 


THE  TAYIXG  TELLER. 


It  has  already  been  explained,  in  connection  with  the  receiving 
teller,  that  the  moneys  received  by  him  are  the  principal  sources  of 
supply  to  the  paying  teller,  but  if  the  payments  at  any  particular  time 
are  running  heavier  than  the  receipts,  recourse  must  be  had  to  deposit- 
ory banlis  for  funds.  In  this  case  requisition  is  made  on  the  treasurer, 
who  draws  the  amount  from  the  nearest  bank,  and  talies  the  paying 
teller's  receipt  on  the  stub  of  the  check  book.  The  bank  accounts  are 
drawn  upon  for  payments  to  depositors,  also,  in  another  way.  A  de- 
positor frequently  prefers  to  receive  his  payment  in  a  check  on  some 
commercial  bank,  rather  than  in  money,  thus  lessening  the  risk  of  loss, 
and  in  many  cases  creating  additional  evidence  of  his  transaction. 

In  this  case  the  paying  teller  sends  the  depositor,  after  verifying 
his  draft,  to  the  secretary's  window,  and  himself  hands  the  draft 
to  the  secretary,  who  gives  the  check  to  the  depositor.  On  the  return 
of  the  draft,  the  paying  teller  receipts,  as  before,  in  the  margin  of  ihe 
check  book.  Thus,  the  receipts  of  the  paying  teller  are,  first,  from 
the  receiving  teller;  second,  from  the  treasurer  in  money  drawn  from 
the  banks;  and,  thirdly,  in  checks  which  are  immediately  issued.  His 
payments  are  almost  exclusively  to  depositors.  When,  as  has  already 
been  said,  the  depositor  presents  himself  at  his  window  with  a  re- 
quest for  a  certain  sum  of  money,  the  paying  teller  has  to  make  the 
following  inquiries: 

First.— Is  the  pass  book  presented? 

Second.— Is  there  sufficient  money  on  the  account  to  pay  the  draft? 
In  order  to  ascertain  this  he  requests  the  bookkeeper,  by  mentioning 
the  number  of  the  account,  to  inform  him  of  the  present  balance,  or^, 
if  there  be  sufficient  time,  examines  it  himself. 

Third.— Is  there  a  properly  made  out  draft  for  the  amount?  If 
not.  the  teller  usually  makes  it  out  himself.     (See  form,  page  275.) 

Fourth.— Is  the  signature  genuine?  To  ascertain  this,  he  turns  to 
the  signature  book  (the  entire  series  being  near  him),  and,  finding  the 
number  of  the  account,  compares  the  signature  of  the  draft  held  in 
his  hand  with  that  originally  written  in  the  book.  It  is  very  frequently 
the  case  that  there  will  be  some  slight  disparity,  far  more  frequently 
than  in  case  of  a  commercial  bank.    The  last  withdrawal  was  perhaps 


286  PRACTICAL  BANKING. 

many  years  ago.  and  very  naturally  some  change  may  have  taken  place  in 
the  character  of  the  handwriting.  Any  substantial  variation,  such 
as  writing  initials  instead  of  full  names,  or  abbreviations  instead  of 
initials,  he  causes  to  be  corrected  by  a  re-writing  of  the  name  on  the 
back,  if  the  depositor  is  present  in  person.  It  is  not  his  duty  to  refuse 
payment  where  the  signature  is  not  absolutely  identical.  He  must, 
using  the  best  of  his  judgment  and  discretion,  form  his  opinion  as  to 
whether  the  signature  is  genuine.  A  by-law  of  the  bank,  which  has 
been  sustained  as  reasonable  by  the  courts  of  the  State,  declares  that 
any  payment  made  to  any  person  producing  the  genuine  pass  book 
shall  be  considered  valid,  and  shall  discharge  the  bank.  A  payment 
without  the  pass  book  is  very  exceptional,  and  is  never  made  without 
the  approval  of  one  of  the  officers  of  the  bank,  noted  on  the  draft  it- 
self. In  this  case,  of  course,  a  perfectly  incontestable  signature  must 
be  presented.  In  the  case  of  persons  who  did  not  write,  but  made  a 
mark  on  the  opening  of  their  account,  the  mark  is  now  made  in  the 
presence  of  the  teller,  and  the  person  is  asked  the  various  test  ques- 
tions which  were  asked  at  that  time.  If  answered  correctly,  and  the 
appearance  of  the  person  sufficiently  answers  the  description,  this, 
with  the  presentation  of  the  pass  book,  is  considered  sufficient  evi- 
dence to  pay  on. 

In  some  of  the  older  Savings  banks  the  signature  of  the  depositor, 
when  coming  in  person  to  draw,  is  not  taken.  They  rely,  not  on  com- 
parison of  signatures,  but  on  the  asking  of  the  so-called  test  questions. 
This  seems  to  us  a  very  improper  way  of  transacting  business,  of 
wliich  the  only  advantage  has  been,  in  past  years,  the  saving  of  two 
cents  for  an  internal  revenue  stamp,  now  abolished.  The  bank  retains 
no  voucher  for  the  payment.  It  is  perfectly  easy,  especially  in  our 
crowded  tenement  houses,  for  a  person  who  has  abstracted  a  pass 
book,  to  obtain  such  information  as  the  names  of  parents,  etc.,  and 
the  writer  has  no  doubt  that  many  cases  of  fraud  have  occurred  in  this 
way,  which  even  the  depositors  have  not  been  aware  of.  The  identi- 
fication by  questions  should  only  be  employed  as  a  last  resort,  where 
comparison  of  signatures  cannot  be  made. 

Fifth.— To  whom  is  the  amount  payable?  Instead  of  coming  in 
person,  the  depositor  frequently  gives  his  draft  to  another.  The 
printed  forms  given  by  the  bank  read  "pay  to  myself,  or  bearer,"  and 
in  the  forms  given  in  the  pass  book,  the  word  "bearer,"  is  always 
recommended  to  be  inserted.  Occasionally,  a  draft  is  presented,  pay- 
able to  order.  In  this  case,  of  course,  identification  is  necessary,  as  in 
a  business  bank.  The  banlv  claims  the  right  to  decliue  any  such  draft, 
as  it  is  no  part  of  its  business  to  verify  endorsements,  but  frequently 
the  difficulty  is  overcome  by  paying  in  check  to  the  order  of  the  payee 
named.  Some  drafts  are  presented  through  the  medium  of  business 
banks,  having  been  deposited  for  collection.  These  are  also  usually 
paid  by  check.  The  bank  has  the  right,  in  case  of  a  financial  panic, 
or  similar  emergency,  to  demand  sixty  days'  notice  before  making  any 


THE   PAYING   TELLER.  287 

payments  whatever.    In  this  case,  it  is  the  duty  of  the  paying  teller  to 
accept  such  written  notices. 

If  the  double  entry  machines  are  used,  the  one  at  the  paying  tell- 
er's desk  is  adjusted  in  such  a  way  that  the  amount  printed  on  the  pass 
book  as  paid  is  further  to  the  right  than  the  amount  received.  For 
example,  if  the  pass  book  already  described  on  page  —  as  containing 
a  deposit  of  $299.37,  on  January  29,  1898,  should  be  presented  on  Feb. 
17,  1898,  for  a  withdrawal  of  $148.52,  the  pass  book  would  represent 
this  appearance: 


No.  204,793  Deposits  Drafts 

29  Jan.,  1898,  Rec'd  J  $^'299.47 

17  Feb.,  1898,  Paid   A  $*148.52 


The  entry  on  the  tape  is  the  same  as  already  described  for  a  receiving 
machine,  but  it  is  advantageous  to  use  a  different  colored  tape  for  pay- 
ments and  a  separate  scrap  book  for  preserving  them.  If  the  machine  is 
not  used,  the  paying  teller  keeps  a  draft  book,  precisely  corresponding  to 
the  deposit  book  already  described.  His  daily  report  is  precisely  simi- 
lar to  that  of  the  receiving  teller,  the  footing  of  his  draft  book  being 
c-Ltered  as  a  credit,  and  the  statistics  of  the  number  of  drafts,  and 
number  of  books  closed,  taking  the  place  of  number  of  deposits  and 
number  of  accounts  opened.  "When  an  account  is  closed,  the  pass  book 
is  always  retained  by  the  bank;  therefore,  at  the  close  of  the  day,  the 
paying  teller  should  have  a  pass  book  for  each  account  which  has 
been  closed,  and  his  report  of  the  number  closed  is  made  by  counting 
these  pass  books.  The  following  morning  this  account  is  verified  by 
p  report  from  the  bookkeepers  of  the  number  of  accounts  actually 
ruled  off  on  the  ledger.  In  case  of  a  lost  book,  an  envelope,  of  the 
size  of  the  pass  book,  and  marked  with  the  number,  date,  etc..  Is  put 
in  as  a  substitute  or  dummy.  It  is  the  paying  teller's  business  to  keep 
himself  supplied  with  funds,  and  to  give  timely  notice  to  the  treasurer, 
or  to  the  receiving  teller,  that  they  may  have  money  ready  for  him 
In  the  morning  hours  when  he  has  leisure  to  count  it. 


288 


PRACTICAL   BANKING. 


The  Pass  Book  must  be  given  up  at  the  final  payment.  j. . . . , 

(Amount  filled  in  by  the  Bank, 
New  York, 189. .  not  by  the  Depositor.) 

Received                                                                                           the  entire 
from  the  UNION  DIME  SAVINGS  INSTITUTION,  amount  of  Book  No 


Signature  

Individually  or  as  Trustee,  as  the  book  reads. 


Present  Address  . 


[July  98,*408]       Paid  by      Entered  by       Sig.  ex'd  by 


[This  line  is  filled  in  at  the  Bank.]     Amount  sent Charges. ..  cts.    Total,  |.. 


Form  E. 
Dec.'98,*428. 


AFFIX 

TWO   CBNT 

INTBRNAL 

RBVENUE 

STAMP. 


Address . 


.189 


UNION  DIME  SAVINGS  INSTITUTION: 

I  send  you  herewith  Pass-book  No .         

on  which  please  send  me Dollars 

at  my  expense  and  risk,  to  the  address  below, 

in  the  manner  following  not  stricken  out:     By  Check  to  my  order.    By 

Registered  Letter.     Bj' Money- Order.     By  Express.     By 

Signature 


Individually  or  as  Trustee,  as  the  book  reads. 


Sent  by  Entered  by  Sig.  ex'd  by 


Form  of  Transfer  Ticket. 


Union  Savings  Bank. 

TRANSFER.  $ 

from  Account  No 

to  No Account  of 


New  York 18 

Signature 

Present  Address 

Apri 

Sig.  ex'd  by  Approved  by  Posted  July 

as  Transfer.  :      Oct. 


TRANSFER. 

I  I 

i  to  the  credit  of  Account  No 

i  Name 

i  from  No 

I  Date, 

i  Interest  from 
Jan. 


Entered,  Transfer  B'k 
Posted 

as  Transfer 

6  3  0 


THE   BOOKKEEPER.  389 


CHAPTER   VL 


THE  BOOKKEEPER. 


The  bookkeeping  department  of  the  Savings  bank  has  charge,  sole- 
ly, of  the  acconnts  with  depositors.  The  general  accounts  of  invest- 
ments, incomes  and  expenditure,  are  a  separate  system  under  the  di- 
rect charge  of  the  secretary.  The  province  of  the  bookkeeping  de- 
partment is  to  keep  a  classified  record  of  the  tellers'  transactions, 
which  shall,  at  any  moment,  indicate  the  standing  of  any  given  de- 
positor witli  the  banlv  and  the  balance  to  his  credit,  at  the  same  time 
corroborating  the  accuracy  of  the  teller's  figures.  The  transactions 
with  the  depositor  are:  first,  deposits;  second,  interest;  third,  drafts; 
fourth,  transfers.  The  tickets  already  described  as  deposit  tickets  and 
draft  tickets  form  the  basis  of  all  the  bookkeeping  operations.  The 
transfer,  which  consists  in  withdrawing  from  one  account  and  cred- 
iting the  same  sum  to  another,  is  effected  by  a  double  ticket.  Half  of 
this  is  of  the  size  and  form  of  a  draft  ticket,  and  the  other  half  of 
that  of  a  deposit  ticket,  and  any  clerk  is  authorized  to  make  a  trans- 
fer, being  responsible  for  all  the  parts  of  it.  He  makes  the  entry  in 
both  pass  books,  writes  up  a  description  of  the  transaction  in  a 
third  book,  called  the  transfer  book,  giving  the  number  of  the  ac- 
count from  which,  the  number  of  the  account  to  which  the  transfer 
Is  made,  and  its  amount,  and  also  the  date  from  which  it  bears  inter- 
est. The  double  ticket  is  placed  upon  a  special  spindle  kept  near  the 
transfer  book.  The  bookkeeping  work  of  one  day  is  always  done  on 
the  following  day.  The  result  of  the  day's  business  is  an  accumula- 
tion of  tickets  of  the  three  kinds,  as  already  described,  and  these  are 
stamped  with  the  otticial  date  and  the  initials  of  the  respective  tellers, 
the  transfers  being  divided  into  their  component  parts.  We  then  have 
two  series,  one  of  del)its  against  depositors,  and  the  other  of  credits  in 
their  favor.  The  first  duty  of  the  head  bookkeeper  is  to  take  each 
series  and  to  divide  it  according  to  the  numbers  belonging  to  the  dif- 
ferent ledgers.  The  ledgers  of  the  bank  contain  5,000  numbers  each, 
in  consecutive  order,  but  when  the  majority  of  the  accounts  have  been 
closed,  several  of  these  are  consolidated  and  kept  in  one  volume. 

The  ledgers  are  grouped  in  sections  as  many  sections  as  there  are 
bookkeepers.    Suppose  there  are  five  bookkeepers  and  the  ledgers  are 


290  PRACTICAL  BANKING. 

numbered  as  high  as  66,  the  first  48  having  been  consolidated.    Then 
the5'  are  divided  into  five  sections,  so  as  to  equalize  the  work  as  nearly 
.  as  possible,  e.  g.: 

FIRST  SECTION.    Ledgers  AC,  D,  E,  F,  G,  49,  50,  51. 

SECOND  SECTION.    Ledgers  52,  53,  54,  55.  56,  57. 

THIRD  SECTION.    Ledgers  58,  59,  60,  61. 

FOURTH  SECTION.    Ledgers  62,  63,  64. 

FIFTH  SECTION.    Ledgers  65,  66. 

No  one  bookkeeper  has  any  section  under  his  exclusive  charge,  but 
they  rotate,  so  that  if  I  post  on  the  first  section  to-day,  I  do  so  on  the 
second  to-morrow,  on  the  third  day  after  to-morrow.  The  bookkeeper 
to  whom  falls  the  posting  of  the  third  section,  embracing  accounts 
numbered  290.001  to  310,000  inclusive,  receives  the  tickets,  debit  and 
credit,  belonging  to  accounts  contained  within  those  limits.  He  next 
makes  a  further  arrangement,  so  as  to  bring  them  into  exact  numerical 
order,  which  greatly  facilitates  posting.*  It  may  be  briefly  described 
as  follows:  The  ledger  consists  of  three  columns  besides  the  date: 
debits,  credits  and  balance.  After  each  transaction,  and  in  the  sajne 
line  with  it  appears  the  resulting  balance  or  amount  to  the  credit  of 
the  depositor.  The  posting  is  done  entirely  from  the  tickets  in  the 
first  instance,  but  only  consists  in  rewriting  the  balance,  plus  the  de- 
posit, or  minus  the  draft,  as  the  case  may  be.    Thus,  if  the  bookkeeper 

has  a  deposit  ticket  on  John  Smith's  account  for §29  32 

he  turns  to  proper  page  of  ledger,  as  indicated  by  the  number  on 

the  ticket,  and  there  he  finds  that  the  present  balance  is 270  44 

Adding  mentally,  figure  by  figure,  he  writes  on  the  next  line. .  299  76 
which  is  the  new  balance  produced  by  the  transaction.  He  also  writes 
the  date,  but  does  not  make  any  entry  in  the  column  devoted  to  de- 
posits. 

The  "Ledger  Test"  is  a  book  giving  a  transcript  of  all  the  posting 
day  by  day,  made  for  conveniejice  on  loose  sheets,  which  are  finally 
bound  up  in  a  self-binder.  To  prepare  these  sheets,  nothing  is  writ- 
ten except  the  number  of  the  account  and  the  iiame  of  the  depositor. 

Now  comes  the  process  of  verification.  Turning  to  Mr.  Smith's 
account,  the  verifying  bookkeeper  (not  the  one  who  posted  it)  infers 
from  the  two  balances  that  the  transaction  must  have  been  a  deposit 
of  $29.32.  He  therefore  writes  that  amount  in  the  credit  column  of 
Smith's  account,  and  copies  the  same  into  the  credit  column  of  the 
Journal.  Now  it  is  evident  that  if  there  were  a  mistake  either  in  the 
amount  of  the  entry,  or  in  subtracting  instead  of  adding,  or  in  com- 
puting the  balance,  as  changed,  the  aggregate  of  the  entries  on  this 
ledger,  and  the  aggregate  of  the  entries  of  the  entire  day  will 
be  incorrect.    This  aggregate  is  carried  to  a  book  known  as  the  Re- 


*The  process  employed  in  posting  is  fully  explained  in  an  article, 
entitled  "Balance  Posting,"  in  The  Bookkeeper,  No.  51. 


THE  BOOKKEEPER.  291 

capitulation  Book.  Opposite  "Ledger  58,  59,  60  and  61,"  the  bookkeeper 
enters  the  amounts  posted  to  each  side,  as  shown  by  the  test  sheet. 
When  the  daily  proofs  have  been  completed  by  filling  up  every  line, 
their  total  is  compared  with  the  total  aggregates  derived  from  the 
teller's  reports,  and  if  there  is  ary  discrepancy,  it  indicates  some  error, 
either  in  the  teller's  accounts,  or  in  the  balancing  of  some  depositor's 
account,  or  in  the  transaction  on  some  depositor's  account,  or  in  addi- 
tion, which  must  be  traced  and  corrected. 

A  "Monthly  Proof"  is  also  made,  which  mvolves  the  total  trans- 
actions for  the  month,  and  tne  aggregate  balance  of  each  ledger,  be- 
ing a  summary  trial  balance. 

Another  feature  is  introduced  which  is  not  absolutely  essential  to 
the  proof  of  posting,  but  is  found  very  valuable.  Instead  of  -the  Test 
Sheet  containing  merely  two  columns,  Debits  and  Credits,  it  contains 
six  columns,  every  transaction  being  placed  in  one  of  three  columns, 
according  to  its  effect  on  the  interest  for  the  current  half  year,  which 
must  be  either  for  six  mouths,  three  months,  or  no  interest  at  all,  or 
a  mixture  of  these.  By  keeping  these  six  columns  running  through 
the  half  year  there  results  a  perfect  proof  of  the  total  dividend  of  in- 
terest, iiresp active  of  the  iiitere^t  credited  to  each  depositor. 

We  have  described  one  of  the  most  advanced  methods  for  keeping 
accurate  accounts  with  depositors,  and  one  by  which  it  would  seem  al- 
most impossible  that  any  error  should  escape  detection.  It  involves 
two  principles  which  seem  to  us  vital  in  insuring  accuracy.  First, 
that  where  there  is  a  great  volume  of  work  to  be  gone  over,  it  should 
be  cut  up  into  such  small  portions,  each  separately  proved,  that  the 
area  of  search  for  errors  is  narrowed.  Second,  that  the  process  of 
verification  should  be  totally  different  from  the  process  verified.  A 
familiar  illustration  of  the  latter  principle  is  in  the  process  of  addition, 
where,  having  added  upwards,  we  then  add  downwards,  lest  the  same 
error  occur  in  the  same  combination  of  figures. 

We  will  now  describe  one  of  the  primitive  methods  which  are  still 
in  use  in  some  institutions  and  which  violate  these  principles.  The 
ledger  contains  columns  for  drafts  only  and  deposits,  none  for  the  bal- 
ance. The  posting  is  done,  not  from  tickets  but  from  the  tellers'  de- 
posit and  draft-books.  The  verification  is  merely  a  going  over  the 
items  in  the  same  order,  aflixing  a  check-mark  if  the  original  book  and 
the  ledger  agree.  There  is  no  division  of  the  transactions  and  bal- 
ances of  different  ledgers  or  sections.  The  only  thorough  proof  is  in 
the  semi-annual  trial-balance,  and  it  is  an  almost  hopeless  task  to  find 
an  error  in  this,  if  there  is  a  discrepancy,  as  usually  happens.  Ex- 
perience has  shown  that  this  method  neither  prevents  nor  detects  with 
certainty  errors  in  posting. 

To  return  to  our  advanced  method.  The  interest,  or  dividend,  is 
computed  semi-annually,  and  its  calculation  devolves  upon  the  book- 
keepers, each  for  his  own  ledger.     The  calculations  are  gone  through 


292  PRACTICAL  BANKING. 

twice.     The  first  operatiou  is  entered  in  a  booli  called  "Interest  and 

BaUiuce  Book,  Ledger  ."    This  contains,  on  the  left  hand  side,  the 

numbers  of  all  the  open  accounts  in  succession,  followed  bj'  columns 
for  the  amount  of  interest  at  each  half-yearly  period,  separated  by 
other  columns  for  the  balance,  which  will  hereafter  be  explained. 
The  so-called  "balance  column"  of  the  deposit  ledgers,  greatly  facili- 
tates the  calculation  of  interest.  Malving  the  calculation  mentally, 
figures  are  put  down  in  the  "Interest  and  Balance  Book,"  opposite 
the  principal,  in  pencil.  When  the  ledger  has  been  finished  in  this 
way,  the  "Interest  and  Balance  Book"  is  laid  aside  entirely  and  the 
calculations  again  made,  the  result  being  noted  in  pencil  on  the  mar- 
gin of  the  account.  Thus  there  are  two  independent  calculations  of 
dividend,  and  if,  upon  comparing  these  two  they  are  found  to  be  iden- 
tical, it  is  assumed  that  the  calculation  is  correct.  As  this  work  is 
commenced  before  the  end  of  the  interest  period,  there  are  changes 
during  its  progress,  caused  by  the  withdrawal  of  money.  These  are 
corrected  each  day.  After  the  first  of  January,  or  of  July,  the 
amounts  penciled  on  the  margin  are  written  with  red  ink  in  the  body 
of  the  account,  and  the  resulting  balance  carried  out,  also  in  red. 
The  "Interest  and  Balance  Book"  is  added  up  by  pages  and  aggregated 
by  ledgers,  so  as  finally  to  show  the  total  amount  of  the  dividend. 
It  is  the  duty  of  the  bookkeeper  to  enter  in  the  depositor's  pass  book, 
whenever  required  by  him,  all  dividends  standing  to  his  credit  up  to 
date.  This  is  also  done  in  red  ink,  and  it  is  the  invariable  rule  to  foot 
up  and  balance  his  pass  book  at  that  time,  compare  its  balance  with 
that  shown  by  the  ledger  account,  and  check  off  the  latter,  if  correct. 
The  book  is  also  similarly  balanced  whenever  the  page  is  full;  thus 
the  daily  and  monthly  reports  of  the  bookkeepers  verify  and  control 
the  daily  and  monthly  reports  of  the  tellers,  the  cash  department 
and  the  accounting  department  each  reporting  to  the  secretary,  who 
balances  one  against  the  other. 

In  connection  with  the  signature  book  the  index  cards  are  de- 
scribed and  exemplified.  These  are  kept  in  a  chest  of  drawers  which 
will  contain  about  10,000.  They  are  arranged  in  alphabetical  order, 
the  index  cards  of  each  day  being  inserted  in  their  appropriate  places, 
and  the  cards  representing  closed  accounts  being  each  day  extracted 
and  filed  in  a  separate  series,  so  that  the  regular  series  contains  only 
the  open  current  acccounts. 

Many  forms  of  index  books  have  been  and  are  used— simply  al- 
phabetical, alphabetical  with  vowel  divisions,  and  alphabetized  accord 
ing  to  the  first  three  letters.  In  none  of  these  can  the  arrangement 
ever  remain  absolutely  alphabetical,  and  there  is  always  a  consider- 
able space  to  be  gone  over  to  find  a  certain  name,  and  a  great  chance 
of  missing  it.  In  the  card  method  a  certain  name  can  occupy  but 
one  place,  as  in  a  directory,  and  the  dead  accounts  do  not  have  to  be 
gone  over  in  order  to  find   the  open  ones. 


THE  BOOKKEEPER.  293 

Little  zinc  cards  indicate  the  divisions  between  letters,  and  be- 
tween combinations  of  letters,  so  as  to  facilitate  search. 

We  have  now  considered  the  principal  functions  of  all  the  clerks 
of  the  bank,  and  have  next  to  describe  the  duties  of  its  executive  of- 
ficers. These  are,  in  the  bank  under  consideration,  the  president, 
treasurer  and  secretary.  The  treasurer  and  secretary  perform,  to  a 
certain  extent,  co-ordinate  duties.  That  is,  they  assist  each  other, 
and  relieve  eacli  other  when  absent.  We  will  describe  first  tlK'  duties  of 
and  relieve  each  other  when  absent.  We  will  describe  the  duties  of  the 
treasurer  in  the  next  chapter. 


294  PRACTICAL  BANKING. 


CHAPTER   VII. 


THE  TREASURER. 


This  officer  is  elected  by  the  board  of  trustees,  and  holds  otiice  at 
their  pleasure.  He  may  or  may  not  be  a  member  of  the  board,  but 
it  is  customary  that  he  should  be.  His  department  is  the  custody  and 
management  of  the  investments  of  the  bank,  but,  as  the  senior  officer 
present,  he  exercises  a  general  direction  over  all  departments.  The 
cash  deposited  in  banks  is  principally  under  his  control.  He,  or  the 
secretary  acting  for  him,  directs  the  deposits  to  be  made  in  different 
banks.  Checks  on  the  banks  are  signed  by  him  and  by  the  secretary, 
and  countersigned  by  the  president.  He  is  the  proper  officer  to  col- 
lect interest  or  rent  due  the  institution,  to  receive  payment  for  obli- 
gations which  mature,  to  receive  applications  from  borrovrers,  and  to 
lay  before  the  board  of  trustees  all  matters  pertaining  to  investments 
which  may  require  their  action.  The  principal  investments  of  the 
bank,  as  permitted  by  law,  are— 1st,  loans  on  pledge  of  stocks;  2d, 
stock  investments;  3d,  mortgage  loans. 

The  kinds  and  amount  of  these  various  classes  of  investments  are 
guarded  by  law.  which  differs  in  the  various  States.  In  the  New 
England  States  loans  m^y  be  made  upon  bills  receivable  as  security, 
which  is  not  the  case  in  this  State.  In  some  States  loans  may  be 
made  upon  bank  stocks  or  railroad  stocks. 

The  first  of  these  classes,  loans  on  pledge  of  stocks,  are  consid- 
ered as  a  temporary  investment.  The  loan  cannot  exceed  par,  and 
there  must  also  be  a  margin  of  ten  per  cent.  These  loans  are  made 
upon  the  sole  discretion  of  the  Treasurer,  as  it  would  be  impracti- 
cable, in  case  of  a  loan  from  day  to  day,  to  await  the  action  of  the 
board  at  its  monthly  meeting.  The  borrower  deposits  the  securities, 
the  treasurer  is  responsible  for  seeing  that  they  are  genuine  and  that 
they  are  sufficient,  and  for  their  custody.  He  takes  from  the  bor- 
rower a  voucher,  and  also  a  note,  which  are  at  first  embodied  in  one 
document,  afterwards  separated. 

The  raising  and  lowering  of  the  rate  on  such  loans  Is  also  at  his 
discretion,  and  if  the  loan  should  not  be  paid,  principal  or  interest,  when 
due  and  demanded,  it  is  his  duty  to  sell  the  stocks  pledged  as  collat- 
eral security,  as  prescribed  in  the  note,  afid  to  account  properly  for 


THE  TREASURER.  295 

the  proceeds.  It  is  also  his  duty,  in  case  of  the  depreciation  of  the  se- 
curity below  the  legal  margin,  to  make  a  call  for  a  sufficient  part  of 
the  loan  to  bring  it  within  the  margin. 

Second.— Stock  investments.  These  are  usually  voted  by  the 
board,  but  the  practical  business  of  buying  and  selling  is  effected  by 
the  treasurer.  The  board  usually  authorizes  a  purchase  at  not  ex- 
ceeding a  certain  price,  or  a  sale  at  not  below  a  certain  price,  and  it 
is  the  duty  of  the  treasurer,  of  course,  to  obtain  the  most  advantage- 
ous terms  possible  for  the  bank,  and  his  contract,  even  if  it  should  be 
contrary  to  the  vote  of  the  board,  would  bind  the  institution.  These 
securities  ai'e  frequently  of  the  class  known  as  coupon  bonds,  where 
each  maturing  amount  of  interest  is  represented  by  a  small  promis- 
sory note  attached  to  the  margin  of  the  bond.  These  bonds  and  their 
coupons  being  payable  to  l)earer,  there  is  greater  danger  in  case  of 
theft  than  from  registered  securities.  The  treasurer  is,  therefore, 
usually  instructed  to  convert  any  coupon  bonds,  which  may  be  pur- 
chased, into  registered.  As  an  expert  in  the  money  market,  the  treas- 
urer is  expected  to  submit  to  the  board  at  its  meetings  all  desired 
information  as  to  what  appear  to  be  the  most  profitable  investments. 
When  the  interest  on  the  stock  investment  matures,  the  treasurer  at- 
tends to  its  collection  through  the  regular  channels,  referring  to  the 
register  of  interest  due,  kept  by  the  secretary. 

The  law  of  the  State  of  New  York  permits  Savings  banks  to  in- 
vest only  in  the  following  stocks  and  bonds:  1,  United  States  bonds,  in- 
cluding District  of  Columbia  3.G5's;  2,  New  York  State  bonds;  3,  bonds 
of  any  State  in  the  Union  which  has  not  during  ten  previous 
years  defaulted  on  principal  or  interest;  4,  bonds  (if  issued  in  pursu- 
ance of  a  State  law)  of  any  city,  county,  town  or  village  in  the  State; 
5,  any  interest-bearing  obligations  of  the  city  or  county  in  which  th^ 
bank  is  situated;  (5,  bonds  of  certain  named  cities  in  other  States  un- 
der restrictions;  7.  bonds  of  railroads  in  this  State,  also  under  special 
restrictions.  In  loaning  on  collateral  security,  the  banks  are  restricted 
to  the  first  five  classes  of  bonds. 

Third.— Mortgages.  A  person  desiring  to  borrow  from  the  bank 
upon  his  mortgage  on  real  estate,  fills  out  the  application  which  con- 
tains spaces  for  a  full  description  of  the  property  and  other  informa- 
tion concerning  the  proposed  loan.  This  is,  in  the  first  instance,  in- 
vestigated by  the  treasurer,  and  in  a  great  many  cases  declined  by 
him  at  once.  He  is  understood,  by  custom,  to  have  a  veto  upon  such 
applications  as  seem  out  of  the  question.  If  the  loan  appears  ad- 
vantageous, and  within  the  limits  prescribed  by  law,  the  treasurer 
submits  it,  with  others,  in  a  list  at  the  next  meeting  of  the  board;  a 
printed  copy  of  the  list,  giving  a  brief  description  of  the  security  in 
each  case,  being  laid  before  each  member.  If  the  loan  is  accepted, 
and  the  application  forwarded  to  the  attorney  to  whom  the  applicant 
is  then  referred,  and  the  title  is,  by  tlie  latter  pronounced  good,  the 
treasurer  draws  the  bank's  check  in  favor  of  the  attorney  for  the 


296  PRACTICAL   BANKING. 

amount  of  the  loan.  He  will  receive  from  the  attorney  the  applica- 
tion, with  the  receipt  of  the  borrower  endorsed  thereon.  Also  the 
hond,  the  insurance  policy,  the  mortgage,  when  it  has  returned  from 
the  office  of  public  record,  and  the  abstract  of  title  when  it  has  been 
copied.  It  is  his  duty  to  examine  each  of  these  documents,  to  .see 
that  the  correct  amount  has  been  paid  upon  the  voucher,  to  see  that 
the  bond  is  in  accordance  with  the  vote  of  the  board,  that  the  insur- 
ance policy  is  in  one  of  the  companies  selected  by  the  bank,  and  made 
payable  to  the  bank  as  mortgagee,  that  the  mortgage  describes  the 
property  correctly,  and  that  the  abstract  is  properly  certified  to  by  the 
attorney.  He  furthermore  sees  that  the  documents  are  appropriately 
filed    under   the  serial    number   of   the   mortgage. 

All  the  documents,  except  the  application  and  abstract,  are  kept 
in  a  single  envelope,  headed  with  the  number  of  the  loan,  and  they 
retain  this  number  so  long  as  they  are  the  property  of  the  bank. 
The  application  is  filed  as  a  cash  voucher,  and  the  abstracts,  which 
are  somewhat  bulky,  are  kept  in  a  separate  series.  Semi-annually, 
on  the  first  days  of  May  and  November,  it  is  the  duty  of  the  treas- 
urer to  collect  from  the  mortgagors  the  interest  on  their  mortgages. 
He  sends  to  each  mortgagor,  about  twenty  days  previous  to  those 
dates,  a  statement  of  the  amount  of  interest  due.  the  computations 
for  which  are  made  and  verified  by  the  secretary.  This  statement 
is  so  arranged  as  to  constitute,  when  signed  and  returned  by  the 
mortgagor,  a  letter  of  transmission  accompanying  the  payment  to  the 
treasurer.  These  statements  are  required  to  be  signed,  even  when 
the  party  pays  in  person,  as  evidence  of  the  correctness  of  the  amount 
paid.  In  return,  the  treasurer  gives  a  receipt.  In  the  majority  of 
eases  the  payment  of  interest  on  mortgages  is  made  by  check  on  some 
bank  in  favor  of  the  institution.  If  it  is  made  in  money,  a  statement 
is  handed  Avith  the  money  to  one  of  the  tellers,  who  receipts  therefor 
by  writing  his  initials  after  the  words  "Received  by,"  and  returns  the 
statement.     (See  form,  page  273.) 

The  secretary  debits  the  teller  and  credits  the  treasurer.  It  is 
the  theory  of  the  bank  that  every  document  representing  the  payment 
of  money  in  either  direction  should  be  doubly  signed,  by  the  party 
or  bank  official  giving,  and  also  by  the  one  receiving  it. 

Interest  on  loans,  it  might  have  been  stated,  is  collected  in  a 
precisely  similar  manner.  If  a  mortgage  becomes  in  default  of  inter- 
est or  principal,  it  is  the  duty  of  the  treasurer,  after  applying  all 
other  means,  to  place  the  mortgage  in  the  hands  of  the  attorney  for 
foreclosure,  and  upon  the  conclusion  of  the  action,  to  collect  and  ac- 
count for  the  proceeds.  He  also  receives  money  in  partial  pay- 
ment of  mortgages,  usually  where  the  same  are  overdue,  and  run- 
ning by  nuitual  consent.  In  this  case,  he  requires  a  statement  of  the 
general   form,   and   gives  a  receipt. 

liesides  tliese  classes  of  regular  current  investments,  the  bank 
may,  in  certain  cases,  invest  in  real  estate.  These  cases  are  the  fol- 
lowing: 


THE  TREASURER. 


297 


1st.  A  building  for  its  own  use;  but.  as  it  would  be  unprofitable 
to  confine  the  building  to  the  single  storj^  required  for  bank  use,  it  is 
allowed  to  add  portions  thereto  for  the  purpose  of  deriving  revenue 
from  renting.  2d.  Where  mortgages  are  foreclosed,  it  is  frequently 
necessary  for  the  bank  to  bid  at  the  sale  in  order  to  protect  itself, 
and  in  this  manner  it  may  become  tlie  buyer.  When  the  fee  of  a  piece 
of  real  estate  has  been  thus  acquired  by  the  institution,  it  then  be- 
comes the  duty  of  the  treasurer  to  act  as  the  l)ank"s  agent  in  man- 
aging the  propertj',  to  sell  it  Avhenever  that  can  advantageously  be 
done,  and  to  derive  the  best  possible  revenue  from  it.  so  long  as  it  is 
held.  The  collection  of  rents,  both  from  the  rented  portions  of  the 
bank's  premises,  and  from  foreclosed  real  estate,  is  effected  in  a  man- 
ner analogous  to  the  collection  of  interest.  A  statement  is  sent  out  as 
a  notice,  returned  as  a  voucher,  and  exchanged  for  a  receipt.  As 
to  the  sale  of  real  estate  held  by  the  bank,  the  V)oard  usually  in- 
structs the  treasurer  as  to  a  limit,  above  which  he  is  authorized  to 
dispose  of  it.  Wlien  a  bargain  is  made,  he  and  the  purchaser  sign 
in  duplicate  a  contract  of  sale,  and  the  amount  paid  in  hand  at  the 
signing  of  this  contract  is  considered  as  a  liability,  and  credited  to 
the  account  "contract  of  sale." 

The  expenditures  of  the  institution  are  under  the  supervision  of 
the  treasurer.  In  every  case,  whether  the  payment  be  as  an  invest- 
ment, or  as  the  expense  of  managing  any  of  its  departments,  he  takes 
from  the  payee  a  voucher,  and  if  the  actual  payment  is  made  by  a 
teller,  it  is  countersigned  by  the  latter.     (See  form   below.) 

Expense  Voucher. 
Voucher  No [July  '91.] 

For  payment  by  the  UNION  DIME;  SAVINGS  INSTITUTION  of  New  York,  to 
Date  Consideration.  Amounts.  Totals. 


Approved  for  payment        Paid  in  Money, 

\ Teller 

Check  No 

Examined  by  Auditing  Committee, 


Received  on 188 

from  the  UNION  DIMK  SAVINGS  INST'N 

Dollars, 

iu  full  payment,  as  above  stated. 


298 


PRACTICAL   BANKING. 


Voucher  No [Feb. '93. 

For  Payment  by  the  UNION  DIME  SAVINGS  INSTITUTION,  of  New  York,  to 


for  purchase  of  the  following  stocks,  bonds,  or  interest-bearing  obligations  of  the 
of 


Descriptive  Name, 


Registered  Coupon 


Par Payable Nos. 

% 


Interest  at %.       Payable 

Accrued  Interest  from , days 


Approved  for  payment 


Check  No. 


Examined  by  Auditing 
Committee. 


Received  on from  the 

UNION  DIME  SAVINGS  INSTITUTION Thousand 

Hundred  and Dollars 

100 

In  full  payment,  as  above  stated. 


THE  SECRETARY.  299 


CHAPTER  VIII. 


THE   SECRETARY. 


The  secretary  is  supposed  to  be  the  accounting  officer  of  the  bank. 
It  is  his  duty  to  know,  from  it  5  books  and  records,  the  state  of  the 
institution  in  every  department,  at  any  time.  In  practice,  he  per- 
forms a  large  share  of  the  duties  just  described  as  belonging  prop- 
erl}'  to  the  treasurer,  he  being  constituted  by  the  by-laws,  a  vice- 
treasurer;  but  his  duties  will  be  described  as  they  exist  in  theory,  for 
the  secretary  alone.  His  duties  may  be  divided  into  three  branches: 
as  correspondent  of  the  bank,  as  recorder  of  the  board  of  trustees. 
and  as  accountant  of  the  liank.  All  letters  should  be  received  by  him, 
and  answered  by  him.  either  immediately,  or  upon  reference  to  the 
appropriate  department.  It  is  the  rule  of  the  bank  that  every  letter 
received,  however  unimportant,  be  filed  in  its  alphabetical  place,  and 
that  every  letter  sent,  however  apparently  unimportant,  be  copied  in 
the  impression  book.  This  refers  to  all  correspondence  not  of  a  per- 
sonal charactei',  or  all  which  is  signed  otfieially.  There  can  be  no 
such  thing  as  an  unimportant  letter,  because  tlie  fact  of  every  letter 
being  copied  enables  us  to  say  positively,  "I  didn't  write  a  letter  to  so 
and  so  on  such  a  day.  because  if  I  had,  it  would  appear  in  the  copying 
book."  This  being  able  to  swear  to  a  negative,  which  can  only  be 
done  by  the  aid  of  a  rule  without  exceptions,  is,  of  itself,  worth  all 
the  labor  attending  the  copying  of  letters.  Official  letters  of  the  bank 
are  written  upon    its  letter  sheet,    the  heading  of  which,   printed   in 

copying  ink.  contains  the  clauses,  "referring  to  your  letter  of  ," 

and  "subject  ,"  which  enables  a  correspondence  on  a  given  sub- 
ject to  be  traced  through  the  letter  book.  Special  forms  of  letters 
often  required,  are  printed,  as  letter  of  transmission  to  attorneys, 
with  check  for  the  mortgage;  letter  to  depositor,  with  remittance  on 
his  account;  request  to  depositor  to  present  pass  book  (for  the  tracing 
of  errors,  etc.);  circular,  explaining  to  persons  at  a  distance  how  to 
deposit  without  coming  in  person,  called  the  "remittance  circular." 
Circular  with  rules  as  to  interest  on  mortgage,  etc.  This  is  used  to 
"stir  up"  delinquents  by  underscoring  the  part  against  which  they 
have  transgressed.     Notices  of  meeting  of  board  of  trustees. 

Second.— As  recording  officer  of  the  board  of  trustees,   the  secre- 
tary  performs    the   ordinary   duties    of    keeping   the   journal    or   miu- 


300  PRACTICAL  BANKING. 

utos.  and  filing  and  preserving  documents.  He  submits  to  the  board 
at  each  meeting  a  report  which  is  confined  to  the  dealings  of  the  bank 
with  its  depositors,  giving  all  the  statistics  as  to  number  and  amount 
of  receipts  and  payments  and  averages. 

Third.— The  chief  duties  of  the  secretary,  or  those  which  occupy  the 
most  of  his  time,  are  those  which  he  performs  as  accountant  to  the 
bank.  Strictly,  he  has  no  custody  of  any  values  whatever,  but  all 
records  of  transfers  of  values  are  directly  or  indirectly  made  by  him. 
Thus,  he  is  an  auditor  of  every  department  of  the  bank,  all  of  which 
contribute  to  him  through  reports.  He  keeps  personally,  or  through 
assistance,  all  the  general  books  of  lue  bank,  that  is  to  say,  all  the 
books  of  the  bank  except  those  containing  the  accounts  with  depos- 
itors. His  daily  cash  book  classifies  transactions  in  two  ways:  1st, 
as  they  affect  the  general  standing  of  the  bank  in  its  i-elation  with  the 
outside  world;  and,  2d,  as  they  affect  merely  the  increase  and  dimi- 
nution of  some  one  of  the  departments  of  its  cash.  These  depart- 
ments are: — 

1st.  Money  in  the  hands  of  tellers. 

2d.  Funds  in  the  vault  in  the  direct  custody  of  the  treasurer. 

3d.  Deposits  in  banks  subject  to  check  signed  by  the  president, 
treasurer   and    secretary. 

These  together  constitute  the  total  cash  account,  and  the  possible 
transactions  may  be  of  the  following  kinds: 

1st.  Money  received  from  the  public  and  paid  to  one  of  these  de- 
partments, or,  in  other  words,  an  increase  of  the  total  cash  with  an 
increase  in  a  department. 

2d.  Money  paid  to  the  public,  and  drawn  for  that  purpose  from  one 
of  the  departments,  or.  in  other  words,  decrease  of  total  cash,  and 
decrease   of   department   cash. 

3d.  A  transfer  rrom  one  department  of  cash  to  another,  or  in- 
crease of  one  department  and  decrease  oi  another. 

By  means  of  the  inner  columns  of  the  cash  book,  which  represent 
transactions  with  the  public,  and  which,  alone,  find  tlien-  way  to  the 
monthly  cash,  and  the  outer  columns,  which  represent  the  various 
departments  spoken  of,  all  the  records  for  a  single  day  are  made 
upon  a  single  page.  The  possible  transactions  of  a  single  day  will  be 
shown  by  an  example,  in  which  a  page  of  the  daily  cash  book  will  be 
shown,  referring  to  the  reports,  documents  and  vouchers  which  form 
its  basis.  It  will  be  seen  that  every  figure  appearing  in  the  col- 
umns of  the  daily  cash  lias  its  counterpart  in  two  different  documents 
or  reports,  and  that  these  bear  upon  and  corroborate  each  other.  The 
only  exceptions  are  tlie  "vault"  and  the  "check  list,"  which  are 
merely  suspended  transactions;  half-way  houses  where  the  Treasui'er 
temporarily  detains  values. 


THE  SECRETARY. 


800b 


Referexces  axd  Explanations  to  Daily  Cash  Book. 

Line  1  has  no  vouchers,  lb  relating  to  the  "Vault."  cannot  have 
one,  as  it  merely  completes  an  operation  which,  like  15.  was  inter- 
rupted by  the  arrival  of  the  hour  of  three,  when  it  became  impossible 
to  deposit  the  checks.  If  is  included  m  the  sum  of  line  14,  for  which 
the  Park  Bank  gives  its  voucher  in  the  pass  book. 

Line  2.  Collection  of  interest,  d  is  supported  by  Statement  No. 
784,  as  follows: 


XOTICE.— The  half  yearly  interest,  $1,500,  on  Mortgage  No.  443,  for  $30,000,  will  be  due 
and  payable  on  the  first  of  May,  18S6,  at  the  Union  Savings  Bank,  New  York.  Prompt 
payment  is  expected.    Receipted  tax  bill  for  last  year  to  be  exhibited  unless  already  done. 


«5=  This  Paper  is  to  be  SlG^fED  and  returned  to  us  with  the  payment.  •=©& 

New  York,  March  1,  1886. 

To  the  Treasurer  of  the  Union  Savings  Bank. 

Sir  : — Herewith  I  deliver  to  you,  in  paj'ment  of 

above  Interest,  fifteen  hundred  Dollars.      Please  acknowledge  receipt. 

James  O.  Smith, 

Examined. 

$1,500                              Received  by  S.                              Address,  115  Broadway. 

Line  3.  Payment  of  Expense,  a  is  included  in  the  amount  $179.07, 
Second  Teller's  Report,  see  page  284.  For  e  see  Form  on  page  297. 
Voucher   signed   by   teller. 

Line  4.  d  is  supported  by  Statement  No.  785,  as  follows:  It  is 
signed  by  the  tenant  and  countersigned  by  the  teller  who  received 
the   money. 


PLEASE   SIGN   AND   RETURN   WITH   THE   RENT. 


Union  Savings  Bank. 

New  York,  March  1,  1886. 

To  the  Treasurer  of  the  Union  Savings  Bank. 
Sir: 

Herewith  I  deliver  to  you 

Rent  will  be  due  Mar.  1,  1886, 

for  No.  Zil  East  46th  Street, 

One  hundred  Dollars,  in  payment  of  Rent  as  stated 

from    March    1    to    April    1, 

iu  the  margin. 

1    Month,  at   $1,200  per  year. 

Geo.  p.  Trumbull, 

$100.                           E.  D.  J. 

Lines  5  and  G  refer  to  a  single  transaction.  As  two  accounts— 
"Mortgages"  and  "Interest"— are  affected  by  it,  it  requires  two  lines. 
Statement  78G  is  as  follows: 


Date,  March  1,  1886. 


Union  Savings  Bank. 


(a)  Paid 
by  Tellers 

(b)Drawn 
from 

Vault. 

{e)  Checked 
from  Banks. 

(d)  Received 

from  the 

Public. 

Account. 

{e)  Paid  to 
the  Public 

No 

215  37 

1,500 

784 

Interest, 

1.  From  va 

y 

52  89 

■ 

100 
10,000 
116  67 

785 
78a 

Expense, 
Rent, 
Mort.  357. 
Interest, 

365 

52  89 

2.  6  mo.  6  9 

3.  Consol.  ( 

4.  Turnbul 

5.  I  Satisfie 

P 

112,500 

U.S.  41-2%. 

2344 

112,500 

6.  i            CI 

c 

36,500 

7.  Bo'tcSfV 

500 

787    Rent, 

8.  Transfer 

p 

375 

K  Expense, 
(  Realestate,15 

366 
2345 

75 
300 

9.  Smith,  7 

10.  Banking 

11.  716  Mad. 

/I 

319  65 

12.  Checks  f 

/ 

126  18 

13. 

A 

56  12 

14.  Deposit. 

15.  Checks  i 
16. 

17. 
18. 
* 

25. 
26. 

p 

1.200 

27. 

28.  Checks 

120 

10 

A 

29. 
30. 
31. 

32.  Deposits 

33.  Drafts 

17 

3 

r 

,j,  6,718  19 

'5 

0 

i;     826  13 

0 

10,140  40 

¥«" 

Depositors, 
do. 

m- 

7,544  32 

a 

547,472  78 

34.  Balance 

d 
Iz; 

0 

31,335  15 

40,056  12 

377,966  37 
528,541  37 

449,357  64 

35.  Balance 

39,434  31 

40,271  49 

569,829  85 

•  1  569,829  85 

36. 

;Kg=This  Form  is  to  be  returned  to  us 
with  Signature. 

UNION  SA  VINGS  BANK, 

New  York,  March  1,  1886 
Statement  for  payment  of  Mortgage  No.  357,  on 
Property,  292  East  32d  Street.     Principal   . .     $10,000 


116  67 


Interest  at  5  per  cent,  from  January  7  to  March  1,  1886,  2  months  j 
24  days.  i 

10,116  67 
To  the  Treasurer  of  the  Union  Savings  Bank: 

Sir— We  deliver  to  you  herewith  Certified  Check  for 
Ten  thousand,  one  hundred,  sixteen  ^g'^  Dollars,  in  payment  of  the  above 
mortgage,  and  acknowledge  receipt  of  the  following  papers:  Bond,  Mort- 
gage, Satisfaction  Piece,  Abstract,  Insurance  Policy. 

Alexander  and  Green,  Attorneys. 

per  James  Blacstone. 

Line  7.  Purchase  of  Bonds,  c  will  be  accounted  for  in  the  pass 
book  of  the  Park  Bank,  which  will  claim  credit  for  this  and  other 
amounts,  e  is  supported  by  voucher  Xo.  2.344,  in  form  similar  to  that  al- 
ready given. 

Line^  8.  Transfer  Between  Banks.  Having  drawn  a  large  check 
on  the  Park,  a  transfer  is  made  from  the  Chemical,  so  as  to  equal- 
ize. The  current  checks  are  drawn  upon  the  Park,  and  the  balance 
in  the  Chemical  is  kept  at  some  multiple  of  365,  to  facilitate  the  com- 
putation of  daily  interest. 

Line  9.  Collection  of  Rent.  Similar  to  4,  except  that  payment  is 
reecived  in  check. 

Line  10,  11.  Payment  of  Expense.  Two  vouchers  are  taken  for 
this  according  to  the  distinction  explained  on  page  297. 


Daily  Cash  Book. 


\saction. 


(f)  Check  {g)  Deposited  {h) Placed  (i)  Heceivsd  by 


List. 


ecks  brought  over. , 
.433,  Smith;  Chein 

.to  Feb.  26  

!.  46,  1  mo.,  Ccy 

cander  &  Green, 
il,  2mo.,24d.,5%... 
'e  &  Co.  at  112>  o.  . . 

.ison  Ave.,  5th  Nat. , 
:,  /  Daubwell  for 

i               painting 
eller 

eller  after  3 


215 

1,500 


10,116  67 


36,500 
500 


319  65 
126  18 


,e  day Increase,      $2,596  03 

"     Decrease,! 

ght  forward j 

ose 


in  Banks. 


in  Vault. 


49,2:7  8: 


479,263  SO 


528,541  37 


56  12 


Tellers. 


40,215  37 


100 


1,200 

376  23 
9,764  17 


27,993  91 


if)  Cash  on  Hand  at  Close. 


1st  Teller,   18,856  43 
2d  Teller,   12,479  72 


Over, 

31,336  15 

1        31,335  15 

Vault, 
Banks, 

40,056  12 

Park, 
Chemical 

Total 

195.466  37 

182,500  00 

377,966  37 
449,357  64 

40,271  49 


39,434  31  \  ;z;i2 


Liue  12,  1.3.  These  are  totals  of  the  checks  taken  on  deposit  by 
each  teller  duriug  the  daj'.  They  are  included  in  the  amounts  $375.77 
and  .$179.07,  for  which  the  tellers  respectively  claim  credit  in  their 
reports.  (The  report  of  the  first  teller  is  given  below,  line  80.)  Each 
teller  keeps  a  book  in  which  he  records  the  particulars  of  each  check. 
viz.,  the  bank  on  which  it  is  drawn,  name  of  the  maker,  number  of 
account  on  which  it  is  deposited,  name  of  last  indorser  from  whom 
it  was  received,  and  amount.  The  book  is  handed  in  to  the  treas- 
urer with  the  checks  between  its  leaves;  they  are  compared  with  the 
list  and  the  total  initialed  by  him. 

Line  14.  At  the  time  of  making  the  deposit,  the  "check  list"  col- 
umn is  added  up.  At  the  same  time  a  deposit  slip  is  made  up  from 
the  checks  themselves  and  its  total  compared  with  14g.  If  correct,  a 
press  copy  is  taken  of  the  slip.  The  teller  of  the  Park  Bank  receipts 
by  entering  the  amount  in  the  pass  book  with  his  initial. 

Liue  15.  One  of  the  tellers  has  received  some  checks  too  late  in 
the  day  to  be  iucluded  in  the  deposit  just  mentioned.  As  it  is  a  pos- 
itive rule  that  the  tellers'  final  balances  must  be  in  actual  money 
these  checks  are  handed  in  to  the  treasurer,  who  enters  them  in  the 
"vault"  column,  whence  their  amount  will  be  taken  next  morning 
to  form  the  first  item  in  the  check  list. 

The  above  entries  are  made  duriug  the  day  from  time  to  time. 
The  remaining  entries  are  made  at  the  close  of  business  for  the  day 
when  the  tellers  have  made  their  reports.  The  teller's  report  shown 
on  page  284  is  that  of  the  second  teller.  J ,  for  the  day  imder  con- 
sideration. The  report  of  the  first  teller.  A ,  contains  the  follow- 
ing entries,  the  signatures  and  "statement  of  cash"  being  omitted; 


800e 


PRACTICAL  BANKING. 


FIRST  TELLER'S  REPORT. 


Dr. 

Cr. 

19,374  16 

Balance  brought  forward. 

! 

376  23 

16  Depositor's,  120-10 

6,718  19 

1,200 

319  65 
Treasurer,             56  12 

375  77 

5,000 

2d  Teller, 

Balance  carried  forward, 

18,856  43 

25,950  39 

25,950  39 

The  entries  from  the  report  are  made  as  follows:  "Balance 
brought  forward"  is  compared  with  the  previous  page,  under  the 
head  of  "cash  balance  at  close."  The  amounts  opposite  "depositors" 
are  entered  on  line  30,  a  and  i.  The  $1,200  which  is  composed  of 
checks  drawn  for  payment  to  depositoi's  who  prefer  to  receive  it  in 
that  form,  is  compared  with  the  stub  of  the  check  book  and  entered 
at  28,  under  c  and  i.  The  .$375.77  has  already  been  entered  in  column 
a,  and  is  composed  of  .$319.05  and  $56.12.  The  $5,000  is  found  to  be 
the  exact  converse  of  an  entry  in  the  second  teller's  report,  and  the 
two  are  checked  off  against  each  other.  Finally,  the  additions  having 
been  proved  and  the  two  sides  found  to  agree,  the  balance,  §18,856.43 
is  entered  in  the  statement  of  "cash  on  hand  at  close."  The  second 
teller's  report  is  then  taken  up,  examined  and  entered  in  the  same 
way,  not  omitting  to  note  an  "over"  of  $1.  The  total  amount  for 
which  the  tellers  are  accountable  is  $31,335.15,  which  is  entered  at 
35  a.  Then  the  columns  a  and  j  are  added  up,  showing  an  equality, 
which  proves  the  correctness  of  the  ligures  as  far  as  they  relate  to 
the  teller's  funds.  Next  the  entries  32  d  and  33  e  are  made  up  by  add- 
ing together,  for  the  former  30  and  31  i.  and  for  the  latter  30  and  31  a. 

It  now  remains  onlj'  to  prove  the  remaining  departments  of  cash, 
and  the  aggregate.  The  amounts  in  line  34  were  brought  forward  at 
the  beginning  of  the  day  from  the  previous  page.  The  amount  in 
vault  is  ascertained,  entered  at  Gj  and  also  at  35b.  Columns  b  and  j 
then  become  equal.  The  amount  in  each  bank  is  obtained,  aggregated 
at  8,  9,  lOj,  and  entered  at  35c,  where  it  balances  the  account  of  the 
banks.  The  total  cash  is  now  ascertained  (llj)  and  entered  at  35e, 
which  gives  the  equal  footing  $569,829.85.  and  proves  the  cash  in  bulk 
as  well  as  by  departments. 

The  voucher  or  document  given  by  the  banks  where  we  deposit 
is  in  the  pass-book  entries:  it  is  made  immediately  in  the  case  of  de- 
posits, but  in  checks  not  till  the  end  of  the  mouth,  when  the  pass  book 
Is  balanced.  The  lines  of  our  specimen  page  of  the  daily  cash  book  will 


THE  SECRETARY.  301 

be  numbered,  and  each  column  forming  it  will  be  lettered,  and  in  our 
explanation  the  two  supporting  vouchers  of  each  line  will  be  given  in 
succession. 

The  intermediate  transfers  or  interchanges  between  departments 
of  the  bank,  which  occupy  so  large  an  amount  of  the  space  of  the 
daily  cash  booli.  do  not,  as  a  rule,  go  beyond  its  pages.  The  inner 
columns  which  we  have  spol^en  of  as  representing  the  relations  of 
the  institution  to  the  public,  contain  all  that  enters  into  the  general 
boolis  of  the  bank,  and.  with  the  exception  of  the  entries  "deposits 
received,"  and  "drafts  paid,"  every  item  in  these  inner  columns  is  sup- 
ported by  a  voucher.  These  form  two  series,  called  the  "general 
vouchers  for  receipts '  and  the  "general  vouchers  for  payments." 
Each  series  is  numbered  consecutively,  but  the  vouchers  for  pay- 
ments form  two  series.  For  the  sake  of  convenience,  vouchers  relat- 
ing to  expense,  either  of  management  or  of  the  banking  premises, 
are  numbered  from  1  to  1,000,  repeating  these  numbers  when  the 
thousand  has  been  reached.  The  remaining  vouchers  for  payment 
are  numbered  from  1,000  upward.  Upon  reaching  No.  2.000,  the 
numbers  recommence  at  1,001.  The  reason  for  this  is  that  the  series 
with  smaller  numbers,  or  expense  vouchers,  are  subjected  to  a  special 
analysis  in  a  book  called  the  "Expense  Book,"  and  it  is  therefore 
preferable  to  keep  them  together.  These  two  series  of  general  vouch- 
ers for  receipts  and  payments  are  the  basis  of  all  further  records. 
No  entries  are  made  from  book  to  book,  but  always  from  the  voucher 
to  the  book,  the  fact  of  such  record  taking  place  being  noted  on 
the  back  of  the  voucher.  Thus,  a  voucher  for  expenditures  on  real 
estate  other  than  the  banking  house  is  recorded  in  "the  daily  cash 
book,  in  the  monthly  cash  book,  under  the  heading  "real  estate,"  in 
the  real  estate  ledger,  under  the  head  of  the  particular  property,  and  in 
the  general  ledger,  under  the  account  of  "real  estate."  These  four 
entries  are  made  each  direct  from  the  voucher.  The  letter  "D"  on 
the  back  of  the  voucher  indicates  that  it  has  been  transcribed  in  the 
daily  cash  book;  the  letter  "M"  that  it  has  been  entered  in  the  month- 
ly cash  book;  and  the  folio  of  the  real  estate  ledger  and  of  the  general 
ledger  are  also  noted  on  the  back.  These  four  entries  must  corre- 
spond, and  any  discrepancy  between  them  will  be  detected  by  the 
operation  of  the  trial  balance. 

The  practice  of  requiring  signed  vouchers  for  payments  of  money 
has  long  been  an  established  rule  of  mercantile  practice,  but,  strange 
to  say,  where  value  of  some  other  kind  is  paid  or  given,  and  money 
received,  it  has  not  usually  been  customary  to  insist  upon  a  voucher. 
In  this  bank  the  principle  is  rigorously  carried  out  that  in  every 
transaction  involving  an  interchange  of  values,  there  shall  be  a. cor- 
responding interchange  of  documentary  evidence  between  the  parties.* 


*See  Lecture  on  Documents  as  Related  to  Accounts,  published  in 
The  Bookkeeper.   No.  58. 


303  PRACTICAL   BANKING. 

As  the  entire  accountability  of  the  bank  rests  upon  these  documents, 
so  their  arrangement  in  convenient  form  for  examination  and  refer- 
ence is  of  importance.  The  vouchers  for  each  month  are  arranged 
in  two  series— the  receipts  and  the  payments,  and  each  of  these  has 
a  list,  the  form  of  which  is  printed  ou  strong  manilla  paper.  The  in- 
side of  the  list  of  vouchers  for  cash  payments  contains,  first,  a  cer- 
tificate from  the  auditing  committee  that  they  have  examined  all  the 
voucliers  mentioned  in  the  list  below,  amounting  to  $  .  and  have 

passed  the  same  as  correct.  The  committee  not  only  signs  this,  but 
one  of  its  members  marks,  with  his  initial  or  otherwise,  each  par- 
ticular voucher,  in  oi-der  to  prevent  its  being  again  presented.  When 
the  examination  is  completed,  this  list  serves  as  a  wrapper  or  jacket, 
within  which  the  vouchers  themselves  are  tied  up.  On  the  outside  of 
the  wrapper  is  a  printed  form,  giving  the  amount  as  classified  for 
posting  aggregates  to  the  general  ledger.  The  total  of  this  outside  list 
will  be  the  same  figures  as  the  total  of  the  numerical  list  verified  by 
the  committee,  but  it  gives  simply  the  aggregate  to  be  charged  to 
each  ledger  account.  For  example,  the  list  inside  may  contain  a  num- 
ber of  vouchers  for  money  loaned  ou  mortgage.  The  classified  list 
will   simply   state— "Mortgages,   $  ."   These   lists,   on   the   outside 

of  the  bundles  of  vouchers  constitute  what  might  be  called  a  grand 
voucher,  Avhich  authorizes  the  secretary  to  record  the  transactions  in 
bulk. 

An  examiner  would  not,  for  the  great  mass  of  transactions,  require 
any  books  in  order  to  ascertain  the  past  history  of  the  institution  since 
this  method  has  been  in  practice.  He  would  simply  be  handed  a 
number  of  bundles  of  vouchers— two  for  each  month— with  the  au- 
thenticated list  on  the  inside  of  the  wrapper  and  the  classified  list  on 
the  outside,  and  from  these  he  could  himself  make  up  an  authenti- 
cated history  of  all  the  substantial  transactions  of  the  liank  during 
the  period  covered.  These  are  the  real  records  of  the  bank.  All  the 
books  are  simply  transcripts  in  various  convenient  and  ingenious 
forms,  in  Avhich  the  order  of  the  vouchers  is  changed  for  obtaining 
special  results.  The  vouchers  are  the  history — the  books  are  philo- 
sophical combinations  of,  and  deductions  from,   the  facts. 

The  primary  vouchers  of  the  deposit  department,  as  already  men- 
tioned, are  the  deposit  tickets  and  draft  tickets,  but  it  would  be  in- 
convenient, from  the  number  of  these,  to  file  them  with  the  general 
vouchers.  Each  teller's  daily  report  is  a  substitute  or  grand  voucher 
for  those  of  the  day  in  nis  department,  and  these  might  be  filed  in 
that  relation;  but  as  they  are  stated  in  the  form  of  an  account,  they 
would  have  to  be  made  in  duplicate,  and  therefore,  for  convenience, 
the  monthly  return  is  required  from  each  teller  as  to  his  deposits 
and   as   to  his  drafts. 

The  secretary  makes  up  at  the  end  of  the  month  two  combined 
vouchers  from  these  monthly  returns.  He  brings  together  the  total 
amount,  and  he  certifies  to  its  agreement  with  the  aggregate  reports 


THE  SECRETARY.  803 

given  independently  from  the  bookkeeper's  department,  so  that  these 
two  vouchors  contain  the  ultimate  condensation  of  the  thousands  of 
drafts  and  deposits  which  accrue  each  month.  This  might  be  called 
a  cumulative  voucher  of  the  fourth  degree.  The  primary  voucher  be- 
ing that  signed  by  the  depositor,  the  secondary  voucher  being  tne 
teller's  daily  report,  and  the  tertiary  being  the  teller's  monthly  report. 
As  corroborated  by  the  accounting  branch  of  the  deposit  department, 
it  consists  of  even  more  steps. 

The  business  of  the  bank  has  three  different  units  of  time — the 
day.  the  month,  and  the  half-year— and  each  of  these  has  its  histori- 
cal record,  its  counterbalancing  proofs,  and  its  final  statement  of  re- 
sults or  balance  sheet.  The  daily  transactions  are  brought  to  a  fo- 
cus upon  the  page  of  the  daily  cash  book,  and  are  also  repeated  in 
various  forms  in  special  ledgers,  namely,  the  deposit  ledger,  mort- 
gage ledger,  loan  ledger,  stocks  ledger,  real  estate  ledger,  rent  ledgei". 
For  information,  there  is  also  kept  in  the  daily  cash  book,  below  the 
cash  entries,  a  daily  statement  of  profit  and  loss  and  a  daily  balance 
sheet,  so  that  at  the  close  of  each  day  the  exact  status  of  the  bank, 
as  near  as  can  be  ascertained,  is  recorded. 

An  accurate  account  is  kept,  in  this  book  only,  of  the  interest,  to 
the  nearest  fraction  of  a  cent,  which  is  earned  on  each  class  of  in- 
vestment, and  this  is  added  to  the  accrued  interest  account  daily,  and 
also  credited  the  income  account.  Similarly  the  accretion  of  rents 
and  any  other  profits  is  recorded.  On  the  other  hand,  the  exact  daily 
amount  is  apportioned  for  payment  of  salaries,  of  taxes,  of  dividend 
as  estimated,  of  general  expenses,  and  for  the  extinction  of  the  pre- 
mium on  bonds  as  they  approach  maturity. 

Each  of  these  elements  produces  its  effect  on  the  profit  and  loss 
or  surplus  account,  and  eciually  on  some  branch  of  the  resources  or 
liabilities,  actual  or  estimated,  so  that  the  business  of  the  day  results 
in  a  balance  sheet,  the  cash  transactions  appearing  above,  being,  of 
course,  taken  into  consideration. 

The  balance  of  each  department  of  the  cash,  and  also  of  the  cash 
as  a  whole,  is  also  verified  daily.  The  monthly  work  consists  in  the 
aggregation,  by  the  means  already  explained,  of  all  the  events  of  the 
month  into  two  sets  of  columns,  which  give  the  general  condition. 
These  totals,  when  posted  to  the  general  ledger,  form  the  basis  of  its 
trial  balance.  The  trial  balance  of  the  general  ledger  is  not  precisely 
Identical  with  the  balance  sheet  contained  in  the  daily  cash  under  the 
last  day  of  the  month,  for  this  reason:  The  general  ledger,  in  its  cur- 
rent or  normal  state,  is  kept  on  the  basis  of  cost.  No  profit  or  loss,  by 
depreciation  or  appreciation,  is  recognized  until  realized  by  the  actual 
disposition  of  the  proceeds.  Hence,  the  trial  balance  of  the  general 
ledger  is  a  balance  sheet  on  the  cost  basis,  while  the  daliy  balance 
sheet  is  on  the  basis  of  present  market  values. 

The  secretary  completes  his  monthly  woi'k  by  making  up.  from 
the  figures  thus  obtained,  the  reports  to  be  submitted  to  the  next  fol- 
lowing meeting  of  the  board  of  trustees.     At  the  monthly   meetings 


304  PRACTICAL  BANKING. 

in  June  and  December,  being  the  last  months  of  the  half  years,  it  is 
required  by  law  that  the  dividends  be  fixed  according  to  the  profits 
earned.  It  is  therefore  necessary  for  an  estimate  of  the  earnings  and 
expenditures  of  the  half-year  to  be  submitted,  as  a  basis  of  this  divi- 
dend. This  can  very  readily  be  done,  as  five-sixths,  or  nearly  eleven- 
twelfths  of  the  period  have  elapsed.  At  this  meeting,  therefore,  the 
secretary  submits  such  an  estimate,  showing,  as  its  result,  the  rate  of 
dividend  which  can  be  allowed,  usually  leaving  a  mai'gin  to  be  added 
to  the  surplus.  The  board  then  votes  upon  the  dividend,  and  the  sec- 
retary issues  orders  to  the  bookkeepers  to  make  the  calculations  at 
the  prescribed  rate.  At  the  same  meeting  the  examining  committee  is 
appointed,  and  this  is  the  first  step  in  the  preparation  of  the  semi-an- 
nual official  reports.  It  is  necessary  that  every  facility  be  provided 
for  this  committee  to  examine  in  detail,  as  far  as  advisable,  the  exact 
condition  of  the  banlc.  The  secretary  prepares  a  balance  sheet  in 
blank,  containing  headings  and  spaces  for  all  the  departments,  of  re- 
sources, of  liabilities,  and  the  surplus,  with  their  several  values.  He 
also  prepares  numerous  blank  schedules,  each  referring  to  one  of 
these  departments,  and  giving  the  individual  units  which  make  it  up. 
Thus,  under  the  head  of  stock  investments,  Schedule  C,  for  instance, 
would  be  given  the  following  information:  Title  of  stock  and  by 
whom  issued;  rate  of  interest;  year  of  maturity;  amount  at  par; 
cost;  present  market  rate;  present  market  value;  interest  paid  to 
what  date;  amount  of  interest  earned  but  uncollected. 

As  the  last  day  of  the  month  approaches,  at  the  close  of  which  it 
is  the  duty  of  this  committee  to  make  its  examination,  the  secretary 
begins  to  fill  in  the  figures  of  these  schedules,  first,  of  course,  in  those 
departments  in  which  there  is  the  le..st  chance  of  a  change  occurring. 
Thus,  if  it  is  not  probaole  that  there  will  be  any  further  purchase  or 
sales  of  stocks  and  bonds,  the  stock  schedule  can  be  filled  up  as  to  all 
the  particulars,  except  "market  rate"  and  "market  value."  In  order 
to  ascertain  the  market  rate  of  such  securities,  recourse  must  be  had, 
where  possible,  to  published  quotations  or  to  the  opinions  of  experts. 
The  secretary  usually  sends,  a  few  days  beforehand,  to  several  firms 
of  respectable  brokers  who  make  a  specialty  of  dealing  in  public  in- 
vestment stocks,  a  list  of  the  kinds  of  securities  held  by  the  bank, 
giving  the  title,  date  of  maturity  and  the  rate  of  interest,  and  re- 
questing a  reply  in  the  margin  to  the  question.  "What  would  be  a 
fair  market  value  for  each  of  these  classes  of  securities  at  the  close 
of  business  on  the  last  day  of  ....?"  These  are  filled  up  and  re- 
turned by  the  brokers  on  the  last  day,  for  the  information  of  the  com- 
mittee. Other  departments  of  resources  also  require  corroborative 
evidence,  which  it  is  the  duty  of  the  secretary  to  procure.  As  to 
balances  deposited  in  banks,  he  requests  the  cashier  of  each  deposit- 
ory bank  fo  certify  the  balance  on  deposit  at  the  close  of  the  month 
to  the  chairman  of  the  committee  direct.  In  case  the  amount  thus 
certified  differs  from  the  amount  appearing  on  the  check  book,  it  is 


THE  SECRETARY. 


305 


the  duty  of  the  secretary  to  explain  and  to  furnish  evidence  of  the 
disparity,  which  usually  arises  from  checks  issued  but  not  yet  pre- 
sented, and  the  committee  should,  during  the  following  month,  or 
whenever  it  can  be  done,  make  a  re-examination  of  the  checks  which 
were  outstanding.  If  there  be  any  papers  in  the  mortgage  depart- 
ment which  the  committee  is  entiiled  to  see,  and  which  are  in  the 
hands  of  the  attorney  for  the  purpose  of  foreclosure  or  otherwise,  a 
certificate  of  their  contents  must  be  furnished  by  the  attorney.  As 
to  real  estate  owned  by  the  bank,  if  necessary,  a  disinterested  ap- 
praiser, experienced  in  real  estate  values,  should  be  employed  to  make 
a  survey  and  report;  and  this  should  also  be  done  in  the  case  of  mort- 
gaged property,  if  there  has  been  such  depreciation  as  to  make  the 
margin  precarious.  All  of  these  preparations,  although  part  of  the 
committee's  work,  are,  in  practice,  attended  to  by  the  secretary  in 
order  to  lessen  the  burden  of  labor  for  the  committee.  Besides  the 
report  of  the  committee  to  the  board  of  trustees,  there  is  an  official 
report  to  the  superintendent  of  the  bank  department,  which  is  re- 
quired by  law  to  be  made  semi-annually  at  the  dates  mentioned.  The  ' 
body  of  this  report,  or  balance  sheet,  is  verified  by  the  oath  of  the 
examining  committee,  and  is  identical  with  the  balance  sheet  con- 
tained in  their  report  to  the  board  of  trustees.  The  report,  however, 
is  submitted  and  sworn  to  in  its  entirety  by  the  president  and  secre- 
tary, and  is  prepared  by  the  secretary  from  his  books.  The  main  re- 
port or  balance  sheet,  just  described,  contains,  in  the  blank  form  fur- 
nished by  the  State  departmem,  a  column  headed  "resources,"  and 
another  headed  'iiabillties." 

Besides  the  main  report  above  given  there  is  a  summary  of  cash 
transactions  for  the  half  year,  or  in  the  December  report  for  the 
whole  year,  and  schedules  marked  froiii  A  to  I. 

The  table  of  cash  transactions  begins  with  the  balance  on  hand 
and  in  banks  at  the  commencement  of  the  period,  to  which  are  added 
the  receipts,  classiiied  according  to  their  sources.  Then  follow,  on 
the  other  side,  the  payments  similarly  classified,  concluding  with  the 
balance  on  hand  and  in  banks  at  the  close  of  the  period.  Under  our 
system,  these  aggregates  are  readily  obtained  from  the  bundles  of 
cash  vouchers  for  receipts  and  payments,  respectively,  being  in  most 
cases  simply  an  adding  together  of  the  six  monthly  totals.  In  some 
of  the  particulars  a  little  analysis  is  necessary  from  the  Avordiug  of 
the  blank,  some  items  not  exactly  coinciding  with  either  of  the  ac- 
counts kept  In  the  General  Ledger  of  the  bank.  It  is,  however,  a  prin- 
ciple in  this  institution,  that  every  official  report  must  have  its  figures, 
in  some  shape,  derived  from  the  books  of  the  bank.  It  is  too  frequently 
the  custom,  in  institutions  of  this  kind,  and  perhaps  of  other  kinds, 
that  the  sworn  reports  are  made  independently  of  the  books,  and  that 
there  is  no  way  of  directly  tracing  the  connection  between  the  two.  As 
duplicate  blanks  are  furnished  by  the  department,  in  order  that  the 
bank  may  retain  a  copy  of  its  official  report,  it  is  the  practice  in  some 


306  PRACTICAL  BANKING, 

banks  to  make  references,  by  book  and  page,  on  the  face  of  the  copy 
retained,  which  will  show  precisely  how  the  figures  are  obtained  from 
the  books.     These  schedules  are  given  in  the  appendix. 

Schedule  A,  No.  1,  contains  a  list  of  mortgages  taken  during  the 
period  covered,  with  the  valuation  of  the  property  mortgaged  as  se- 
curity, and  serves  as  a  general  mortgage  account,  corroborating  item 
1  of  the  resources. 

Schedule  A,  No.  2,  contains  a  list  of  mortgages  paid  off,  in  whole 
or  in  part,  during  the  period  covered. 

The  theory  of  these  two  reports  is  to  enable  the  department  to 
ascertain  the  amount  out  on  mortgage,  and  the  security  therefor;  but 
to  make  up  such  a  statement  from  the  schedules  of  many  years,  would 
be  a  very  laborious  process.  It  would  seem  preferable,  that  occasion- 
ally, say  once  in  three  or  five  years,  a  special  report  should  be  called 
for,  giving  a  full  list  of  the  mortgages  as  they  then  existed,  with  the 
location  of  property,  and  an  appraisal,  which  the  department  could 
verify  at  its  leisure. 

Schedule  A,  No.  3,  is  a  special  list  of  those  mortgages,  the  interest 
on  which  is  more  than  six  mouths  in  arrears.  By  the  law,  in  the 
State  of  New  York,  any  mortgages,  on  which  the  interest  is  not  more 
than  six  months  in  arrears,  are  to  be  taken  at  their  full  value,  and  the 
superintendent  has  a  right,  in  case  of  the  mortgages  comprised  in 
Schedule  A,  No.  3,  to  affix  a  value.  It  is  not  known  that  he  has  in 
any  case  made  such  a  valuation.  In  a  prosperous  bank,  in  ordinary 
times,  this  schedule  should  be  blank. 

Schedule  B  is  a  list  of  the  bonds  or  stock  investments  of  the  insti- 
tution, and  its  arrangement  is  commendable.  In  the  case  of  stocks 
and  bonds,  a  different  plan  is  pursued  from  the  one  adopted  in  ref- 
erence to  mortgages.  In  mortgages,  the  increase  and  decrease  during 
the  period  are  alone  considered.  In  stocks,  the  increase  and  decrease 
are  entirely  disregarded,  and  only  the  final  status  given  in  this  sched- 
ule. Schedule  J  gives  the  particulars  of  all  purchases,  but  the  details 
of  sales  are  nowhere  reported. 

Schedule  B  is  recapitulated  on  a  smaller  blank  for  the  conveni- 
ence of  the  department. 

Schedule  C  is  headed  "Loans  upon  pledge  of  Securities." 

Schedule  D  gives  the  details  of  cash;  first,  as  to  that  deposited  in 
banks  and  t  st  companies,  not  only  is  the  amount  on  deposit  stated, 
but  also  the  capital  and  surplus  of  the  depository  bank,  as  shown  by  its 
last  official  statement.  The  reason  for  demanding  this  information  is, 
that  a  Savings  bank  is  prohil)ited  from  depositing  in  any  bank  or  trust 
company  more  than  a  certain  proportion  (twenty-five  per  cent.)  of  the 
capital  and  siu'plus  of  the  latter. 

Schedule  E  is  entitled  "Assets  of  Every  Description  Not  P^lse- 
where  Enumerated."  It  contains,  first,  a  computation  of  the  amount 
of  interest  due  and  accrued  on  vaiious  assets,  the  total  of  which  is 
carried  to  line  8  of  the  main  report.  Second,  all  other  assets,  their  ag- 
gregate making  up  line  9  of  the  main  rex)ort. 


THE  SECRETARY.  307 

Schedule  F  contains  a  classified  account  of  the  current  expenses 
of  the  banlv  for  the  period,  such  as  sahiry,  taxes,  insurance,  repairs, 
stationery,  advertising,  etc.  The  numbering  of  the  schedules,  which, 
previous  to  this  point,  was  regular,  uow  becomes  arbitrary,  as  different 
schedules  have  been  inserted  according  to  the  views  of  different  offi- 
cials. 

Schedule  G,  No.  1,  contains  receipts  of  all  kinds  not  otherwise 
slated,  while  G,  No.  2,  is  devoted  correspondingly  to  miscellaneous 
payments. 

In  Schedule  H  we  again  return  to  resources.  This  contains  a  de- 
scription of  all  real  estate  owned  by  the  bank,  whether  for  banking 
purposes  or  purchased  under  foreclosure  sale,  giving  the  location,  how 
acquired,  when  ac(iuired,  original  cost,  present  appraised  value, 
amount  of  income  derived  during  the  period,  amount  of  expenditures 
on  it  during  the  period.  Only  one  of  these  columns  demands  special 
remark — the  one  giving  the  cost.  There  is  a  difference  of  opinion  as  to 
what  constitutes  the  cost  of  a  piece  of  property  bought  in  at  fore- 
closure sale  for  less  than  the  face  of  the  mortgage,  and  other  charges. 

First.— It  is  the  usual  way  to  consider  that  the  entire  amount  of 
the  mortgage,  interest,  taxes,  legal  costs— that  is  to  say,  the  entire  cost 
of  the  mortgage  investment  is  also  the  cost  of  the  real  estate.  For 
example: 

The  face  of  the  mortgage  is $10,000 

The   interest   is    GOO 

The  bank   has  paid  taxes 230 

Insurance  42 

And   cost  of  suit    325 

$11,197 

Now,  under  the  present  view,  this  $11,197  would  be  considered 
the  cost  of  the  real  estate  bid  in,  regardless  of  what  the  bidding 
price  was.  and  regardless  of  what  it  was  really  worth.  But,  suppose 
the  property  is  offered  at  public  sale,  and  the  bank  bids  $9,000,  no  one 
offering  more,  then. 

Second. — I  hold  to  the  opinion  that  the  cost  or  purchase  price  of 
this  piece  of  real  estate  is  not  $11,197.  but  .$9,000.  It  is  true  that  the 
entire  investment  was  $11,197,  but  what  have  we  dou^.?  We  have 
taken,  in  part  satisfaction  of  our  claim,  a  house  worth  $000,  and  for 
which  no  one  else  has  bid  more.  The  remaining  .$2,197  is  not  wiped 
out.  We  have  a  deficiency  judgment  for  it  against  the  bondsman.  If 
this  proves  worthless,  of  course  we  lose  the  $2,197;  but  that  is  not  to 
be  assumed  prima  facie.  Suppose  another  person  had  bid  .$9,000,  and 
we,  thinking  that  the  full  price,  had  let  it  go,  would  he,  the  purchaser, 
consider  the  property  worth  any  more  than  $9,000?  He  does  not  know 
of  our  claim;  .$9,000  represents  to  him  the  entire  cost.  We,  on  the 
other  hand  would  have  still  the  deficiency  judgment  for  $2,197.  Pos- 
sibly this  is  worthless.     If  so,  it  is  our  loss;  but  the  loss  is  on   the 


308  PRACTICAL  BANKING. 

boud,  not  on  the  real  estate.  When  we  buy  iu  the  property  we  hap- 
pen accidentally  to  be  the  purchaser  and.  at  the  same  time,  the  judg- 
ment creditor;  but  this  should  not  merge  in  one  two  entirely  different 
transactions.  Suppose,  after  buying  the  property  for  $9,000,  we  sell 
it  for  ,$10,000.  This  gain  of  $1,000  does  not  lessen  our  claim  on  the 
deficiency  judgment.  If  the  debtor  should  be,  or  should  become,  sol- 
vent, we  can  still  collect  of  him  the  full  amount.  The  rise  of  $1,000 
is  our  gain.  But  how  can  it  be  a  gain  if  the  cost  was  $11,197?  I  am 
aware  that  in  this  opinion  I  am  nearly  single-handed  against  all  par- 
ties and  current  opinion,  but  believe  that  my  view  is  strictly  correct. 

Schedule  I  is  a  miscellaneous  one.  Before  the  statement  of  cash 
transactions  was  prescribed,  Schedule  I  contained  questions  elicit- 
ing much  of  the  information  which  is  now  contained  in  that  state- 
ment. Therefore,  its  present  contents  are,  to  some  extent,  a  repeti- 
tion of  what  has  already  been  given  in  the  statement  of  cash  trans- 
actions, and  to  some  extent  contains  matter  which  more  properly  be- 
longed there.  All  statistics  which  relate  to  financial  values  should 
be  grouped  either  under  the  resources  or  the  liabilities,  or  the  re- 
ceipts, or  the  payments,  not  in  a  miscellaneous  schedule  which  con- 
tains such  items  as  the  number  of  trustees  and  the  number  who  have 
attended  each  meeting.  In  this  schedule  occurs  the  question,  "Date 
of  taking  last  abstract  of  balances  due  depositors  as  shown  by  de- 
positors' ledgers,"  and  "What  was  the  amount  of  the  discrepancj-,  if 
any,  between  the  aggregate  of  such  balances  and  the  amount  shown 
by  the  general  ledger  due  to  depositors  at  the  same  date?" 

The  law  requires,  what  a  prudent  banlv  would  of  its  own  accord 
prescribe,  that  an  accurate  list  or  balance  of  amounts  due  depositors 
shall  be  taken  at  least  once  in  six  months,  and  that  the  discrepancies. 
if  any,  found  on  that  occasion  De  reported  to  the  superintendent.  The 
T)rocess  of  this  balance  might  have  been  described  under  the  book- 
keeper's department.  It  has  there  been  stated  that  the  balance  due 
each  depositor  is  proved  whenever  there  is  a  change,  so  that,  substan- 
tially, the  ledgers  are  always  in  a  state  of  proved  accuracy  as  to  indi- 
vidual balances.  We  have  also  seen  that  each  month  the  aggregate 
amount  due  the  depositors  of  each  ledger  is  ascertained,  and  that  by 
aggregating  these  the  grand  total,  as  shown  by  the  general  ledger,  is 
corroborated.  These  processes  continue  during  the  half  year,  and 
the  results  of  monthly  reports  are  entered  in  a  book  kept  by  the  sec- 
retary called  Ledger  Balances.  At  the  end  of  six  months  there  is  an 
additional  column  for  dividend,  and,  including  this,  the  balance  due 
depositors  is  again  ascertained,  and  this  is  the  basis  of  the  semi-an- 
nual trial  balance  required  l\y  law.  Each  of  the  ledgers  ought  to 
show  a  certain  amount  of  aggregate  balances,  and  this  list,  added  to- 
gether in  the  book  called  Ledger  Balances,  equals  the  amount  re- 
ported to  the  bank  department  as  due  depositors  on  the  1st  day  of 
January  or  July.  Each  bookkeeper  transcribes  into  the  book  already 
mentioned  under  the  name  of  "interest  and  balance  book,"  opposite 


THE  SECRETARY.  dOy 

the  proper  number,  the  amount  owing  to  each  depositor.  Having  done 
this,  and  carefully  compared  it,  he  adds  the  entire  amount  together, 
and,  if  perfectly  correct  in  every  respect,  the  sum  total  should  equal 
The  corresponding  line  in  the  ledger  balances.  If  it  does  not  so  equal, 
there  is  probably  an  error,  either  in  transcribing  some  amount,  or 
in  adding  up  some  page,  or  in  adding  the  interest  to  the  ri'evious  bal- 
ance. It  might  be  mentioned  that  the  worli  is  facilitated  by  writing  in 
red  ink,  in  the  balance  column,  the  result  produced  by  crediting 
the  dividend.  It  has  been  found  by  experience  that  any  partial 
method  of  examination,  in  order  to  find  the  reason  of  any  discrepancy, 
is  ineffectual.  Such  methods  we  call  "stabbing."  We  have  an  ex- 
haustive method,  which  we  call  "taking  off  drafts  and  deposits."  It 
consists  in  taking  the  original  tickets  of  all  the  transactions  of  six 
months,  and  assorting  them  in  a  mass,  numerically,  so  that,  for 
example,  in  ledger  27.  the  transactions  of  six  mouths  will  be  repre- 
sented by  two  series  of  tickeis,  the  deposit  tickets  beginning  with 
the  deposits  on  account  No.  135,001,  and  ending  with  the  deposits  on 
account  No.  140.000.  The  draft  tickets  form  a  separate  series,  be- 
ginning and  ending  in  the  same  way.  When  this  assorting  is  com- 
pleted, we  copy  off  each  of  these  series  of  tickets  by  amounts  only, 
but  we  do  this  in  sections.  Suppose  the  first  page  of  the  interest  and 
balance  book  comprises  Nos.  135,001  to  135,050,  then  we  write  down 
all  the  deposits  in  the  same  compass,  and  take  their  total.  We  write 
down  all  the  drafts  in  the  same  compass,  and  take  their  total.  Then 
we  form  an  equation  thus:  Old  balance  -\-  deposit^}  +  dividend=drafts 
-\-  new  balance.  Or,  in  another  form :  Old  balance  +  deposits  +  interest 
— drafts=new  balance.  If  this  equation  holds  good,  the  first  page  is 
considered  correct,  or  proved.  Then  we  go  on  to  the  second  page,  and 
so  on.  Probably  we  discover  by  this  process  the  whole  or  a  part  of  the 
discrepancy  by  the  time  we  reach  the  end.  If  not,  we  put  together  the 
totals;  that  is,  we  arrange  the  page  footings  in  tabular  form  in  five 
columns,  so  that  by  footing  these  columns  we  obtain  of  the  entire 
ledger  the  same  equation :  Old  balance  +  deposits  +  interest  =  drafts  -f- 
new  balance.  This  ought  to  prove.  If  it  does  not,  some  one  of  the 
pages  which  we  believed  to  be  in  proof  has  really  been  out  of  balance. 
Having  brought  this  final  equation  to  an  adjustment,  our  next  step  is 
to  ascertain  in  which  column  the  error  is.  We  have  an  independent 
statement  of  every  one  of  these  columns,  and  we  make  the  comparison 
of  each  in  succession.  The  old  balance  we  have  before  us  in  the  same 
book— the  interest  likewise,  and  the  new  balance.  If  one  of  the  two 
former  of  these  is  incorrect,  the  defect  is  soon  remedied,  but  when 
these  two  columns  have  been  corrected,  we  still  have  the  drafts  and 
the  deposits.  To  find  the  total  drafts  of  six  months,  add  together  the 
drafts  of  January,  February,  March,  April,  May,  and  June  success- 
ively, and  similarly  with  the  deposits.  Now,  this  gives  us  a  test  of  the 
second  and  fourth  columns  of  our  final  equation.  If,  at  last,  we  find 
that  the  error  is  in  one  of  these,  wo  first  go  back,  comparing  the  tick- 
ets with  our  transcription  of  them.    If  this  fails  to  discover  the  error. 


310  PRACTICAL   BANKING. 

it  may  be  necessary  to  re-assort  the  delinquent  tickets,  either  draft  or 
deposit,  by  months,  and  ascertain  in  which  month  the  error  occurs. 
Having  located  it  in  the  mouth,  it  may  be  necessary  to  re-assort  that 
month  by  days,  and  locate  it  by  the  tickets.  But  ultimately  we  must 
find  it.     The  process  is  absolutely  exhaustive. 

The  second  question  propounded  by  the  bank  department  as  to 
the  balance  is,  what  is  the  amount  of  the  discrepancy?  One  of  the 
New  York  banks  constantly  reports  at  present,  '"Old  discrepancy  prior 
to  April  13,  1874,  $2,386.08."  For  some  years  this  has  not  varied. 
The  following  is  its  history:  Up  to  the  date  mentioned  there  had 
been  no  accurate  balances  of  the  depositors'  ledgers.  While  the  bank 
was  small,  the  importance  of  searching  out  and  correcting  the  minute 
errors  which  then  existed  was  not  understood.  The  first  trial  balance 
taken  was  about  $50  out  of  the  way.  The  accounts  were  only  a  few  hun- 
dred in  number.  It  would  have  been  an  easy  matter  to  analyze  the 
work  up  to  that  point  and  to  have  discovered  the  error,  but  it  was 
thought  near  enough.  These  two  words,  "near  enough."  are  the  most 
dangerous  that  can  be  used  in  booklveeping,  for  an  error  which  is  appar- 
ently near  enough  may  be  the  resultant  of  opposing  errors  each  of  large 
extent,  and  one  of  which  will  threaten  danger.  Presumably,  the  labor 
of  finding  this  first  difference  was  postponed  until  a  more  convenient 
season.  As  the  work  increased,  this  search,  which  was  the  business 
of  nobody  in  particular,  became  less  and  less  likely  to  be  effected, 
and  the  next  year  rolled  around,  and  it  came  time  for  another  trial 
balance.  Now  the  number  of  depositors  had  largely  increased,  and 
it  was  said,  "Never  mind  the  old  error;  it  will  probably  turn  up  this 
time."  Nobody  knows  whether  it  turned  up  or  not,  because  the  error 
this  time  was  over  $100  on  the  opposite  side,  so  out  of  the  mud  we 
got  into  the  quicksand.  Each  year  the  same  trial  at  a  balance  was 
made,  and  with  the  same  lack  of  success,  ending  with  the  same  motto 
which  was  at  first  inscribed  on  our  banner,  "Near  Enough."  Near 
enough  one  time  meant  $6,000  until  a  few  months  later  it  was  found 
that  a  little  error  of  $13,000  in  a  semi-annual  dividend  had  been  made, 
wliich  brought  the  "near  enough"  to  $7,000  the  other  way.  Some  radical 
spirit  among  the  bookkeepers  became  dissatisfied  with  this  erroneous 
discrepancy,  and  began  to  think  that  it  was  better  to  undertake  a 
great  deal  more  labor,  and  to  know  at  least  that  the  current  work  of 
the  bank  was  proceeding  correctly;  so,  on  the  13th  of  April,  1874,  they 
divided  the  ledgers  among  themselves,  and  commenced,  in  an  imper- 
fect way,  to  keep  each  ledger  in  balance  as  an  independent  equation, 
and  to  actually  search  out  all  the  errors  in  each  ledger.  It  is  true  this 
was  somewhat  like  the  proverl)ial  needle  and  haystack,  but  the  differ- 
ence was  that  the  haystack  was  very  much  smaller.  Gradually  the  sys- 
tem lias  been  improved  in  simplicity  and  effectiveness  until  the  present 
time,  and  the  old  discrepancy  of  $2,380.08  is  the  relic  of  the  old  errors. 
This  may  some  time  all  be  found,  but  the  probabilities  are  that  it  will 
not.  The  present  secretary  began,  a  few  years  ago,  a  process  of  bridg- 


THE  SECRETARY.  311 

ing  over  the  period  of  chaos  by  beginning  to  do  what  was  not  done  twen- 
ty years  ago,  namely,  to  talve  an  accurate  trial  balance  of  the  worii  at 
the  end  of  each  half-year.  Three  of  the  years  have  thus  been  com- 
pleted, but  the  process  of  going  through  the  remaining  fourteen  years 
involves  colossal  labor.  I'ossibly  it  may  at  some  time  be  thought 
worth  while  to  employ  a  special  corps  of  clerks  to  do  this.  As  an  il- 
lustration of  how  deceptive  tlie  "near  enough"  principle  is,  it  may 
be  mentioned  tliat  at  one  time  our  discrepancy  was  only  .$700— ap- 
parently. The  discrepancy  account  had.  by  successive  finds,  worked 
down  to  this  point,  when,  by  pure  accident,  it  was  discovered  that  the 
amount  in  the  general  ledger,  which  had  been  considered  as  the  stan- 
dard, or  norm,  was  itself  $10,000  away  from  the  truth  by  a  single  error. 
This  startling  discovery  was  enough  to  unsettle  the  minds  of  the  most 
fanatical  adherent  of  the  "near  enough"  theory.  A  search  was  made 
through  the  mouldering  pass-books,  thousands  and  thousands  of  which, 
having  been  closed  and  surrendered,  were  lying  in  numerical  order  in 
the  cellar.  Luckily  they  had  been  preserved.  By  comparing  them 
with  the  ledger  it  was  found  that  about  ?8,C00  of  principal  stood  open 
on  the  lodgers  of  the  bank,  when,  in  realitj%  the  accounts  had  been  en- 
tirely closed.  A  dishonest  employe  might,  by  discovering  these  and  com- 
promising with  the  depositor,  have  abstracted  a  large  amount,  especial- 
ly as  the  accrued  interest  on  the  same  amounted  to  over  .$G,000.  At 
one  stroke,  by  the  closing  of  these  accounts,  there  was  a  gain  to  the 
surplus  of  the  bank  of  more  than  .$14,000,  and  the  effect  upon  the  dis- 
crepancy account  was  to  bring  it  to  2,300  anu  odd  dollars.  Very  little 
has  been  found  since  that  time,  but  it  is  considered  a  matter  of  duty 
to  report  the  amount  every  six  months  to  tne  bank  department.  It 
has  often  been  suggested,  Why  not  close  this  account  into  profit  and 
loss?  The  answer  is  that  an  error  might  be  discovered  the  very  next 
day,  which  would  require  its  re-opening,  and  that  it  is  better  to  leave 
the  account  open  forever  if  necessary,  or  until  the  last  cent  of  discrep- 
ancy of  those  fourteen  years  has  been  discovered.  This  story  of  error 
has  been  related,  because  history  has  so  often  repeated  itself  on  this 
point.  The  writer  has  been  surprised  to  find  how  many  large  institu- 
tions have  had  almost  the  identical  experience,  and  the  old,  old  story 
of  beginning  business  with  a  small  force,  and  with  a  system  which 
was  not  expansive,  and  which  was  soon  outgrown.  The  Bowery  Sav- 
ings Bank,  which  is  the  largest  in  America,  perhaps  in  the  world, 
only  subdivided  its  work  and  took  a  new  departure  with  a  large  dis- 
crepancy within  five  years;  and  at  this  moment  the  Bleecker  Street 
Savings  Bank  is  still  operating,  on  its  initial  or  fundamental  balance, 
for  a  new  system;  a  balance  taken  in  the  air,  so  to  speak,  as  a  point 
of  departure.  A  clerk  in  an  old  Savings  bank  in  Salem,  Mass.,  -vvas 
relating  to  the  writer  only  a  few  weeks  ago  the  history  of  the  book- 
keeping of  his  bank,  which  was  almost  word  for  word  like  the  one 
given  above,  even  to  the  disinterring  of  the  old  pass-books  from  the 
cellar,  with  this  further  incident  that  in  the  Salem  case  the  pass-books 


312  PRACTICAL  BANKING. 

were  unclassified  and  lay  in  mouldy  heaps.     This  embellishment  was 
lacking  in  the  case  cited  above. 


STATEMENT  FOR  PARTIAL  PAYMENT.  Mortgage  No. 


Property  situated  Payment  on  principal,  $. 

Interest  on  payment  to  date, m. d.  at %;  paid. 


Total  cash  received  by. 


New  York, 

To  Thk  Union  Dime  Savings  Institution: 

Herewith  I  deliver  to  you  certified  check  for  the  above  amount,  being  a  partial 
payment,  on  Bond  and  Mortgage,  of thousand hundred  Dollars,  with  inter- 
est thereon  to  date. 

Kt^Please  sign.  


RECEIPT  FOR  PARTIAL  PAYMENT.  Mortgage  No. 


Property  situated Payment  on  principal,  : 

Interest  on  payment  to  date m d.  at percent.;         paid, 

leaving  principal  unpaid,  $ 


New  York, . 
Received,  as  above  stated,  from    


thousand hundred  Dollars,  with  interest  thereon  to  date,  as  a 

partial  payment  on  Bond  and  Mortgage  to  the  Uniox  Dime  Savi.nGs  Institution;  to 
be  acknowledged  also  on  the  bond. 


NOTICE. — Interest  will  be  due  and  payable  Nov.  1,  1897,  on  Mortgage      No 

at  the  Union  Dime  Savings  Institution,  Broadway,  Thirty-second  St.  and  Sixth  Ave, 
New  York.  Prompt  payment  is  expected.  Receipted  Tax-bill  for  last  year  to  be  exhibited 
unless  already  done. 

Principal,! Rate percent       Time,  6  months.     | 


jKS^Please  sign  below  and  return  with  payment  "©a 

New  York 18. . 


Check  to  the  Order  of 

the  institution 

on  the 


To  the  Treasurer  of  the  Union  Dime  Savings  I.nstitution. 

Sir:     Herewith  I  deliver  to  you  in  payment  of  above 


Interest Dollars. 

For $ Please  acknowledge  receipt. 

Currency    $ \  Signature 

( )  I     R.L.M.D.  Address 


THE  SECRETARY. 


313 


RECEIPT  FOR  INTEREST. 


Mortgage  No. 


Principal,  $. 


Ratb, percent.        Time,  6  months.        $. 


New  York 

Rkckivkd  from Check  for 

Dollars, 

for  interest  to  Nov.  1,  1897,  on  Bond        and  Mortgage        to  the  Union  Dime  Savings 


Institution. 


fl^Your  Mortgage  is  subject  to  the  Regulations  on  the  other  side. 


jK^This  Form  is  to  be  Returned  to  us  with  Signature,  and  may  be  copied  in  the  Preas. 

UNION  dime;  savings  INSTITUTION. 

Broadway,  32d  St.  &  Sixth  Ave. 

New  York, 189.. 

Statement  for  Payment  of  Mortgage  No 

on  Property 


Principal, 

-     ■      - 

1 

t 

months 

days, 

to        



- 

Preparing  Papers, 

To  the  Treasurer  of  the  Union  Dime  Savings  Institution. 

Sir: — I  deliver  to  you  herewith  Certified  Check  for 


.  Dollars, 


in  payment  of  the  above  mortgage,  and  I  acknowledge  receipt  of  the  following  papers: 
Bond,  Mortgage,  Satisfaction  Piece,  Abstract,  Insurance  Policy. 


314  PRACTICAL   BANKING. 


CHAPTER  IX. 


THE   TRESIDENT. 


In  many  Savings  banks  the  duties  which  have  been  described  as 
shared  between  the  treasurer  and  secretary,  are  divided  between  the 
president  and  treasurer,  or  the  president  and  secretary.  The  presi- 
dent is  usually  not  a  salaried  officer,  and  in  that  case  his  duties  are 
practically  contined  to  presiding  at  tne  monthly  meetings.  He  is 
rather  president  of  the  board  of  trustees  than  president  of  the  banli. 
In  other  institutions  he  receives  a  small  salary,  attends  daily,  but  not 
during  the  entire  session,  and  has  no  routine  duties,  but  superintends 
and  advises  in  all  departments.  He  is  required  by  the  by-laws  to 
execute  all  deeds,  releases,  satisfactions,  or  other  documents  in  the 
nature  of  a  conveyance  of  real  estate,  and  to  countersign  all  checks. 
Although  it  may  seem  wasteful  to  employ  an  officer  of  a  corporation 
with  no  stated  routine  duties,  yet  where  the  trust  is  large  the  writer 
thinks  emphatically  that  this  should  be  the  case— that  the  duties  of 
the  highest  officer  should  be  entirely  discretionary  with  himself,  and 
that  he  should  possess  such  an  intimate  and  also  such  a  broad  knowl- 
edge of  the  business  that  he  himself  is  the  best  judge  of  what  depart- 
ment needs  his  personal  attention,  and  that  he  himself  can  be  held  re- 
sponsible for  everything. 


THE  BOARD   OF  TRUSTEES.  316 


CHAPTER  X. 


THE  BOARD  OP  TRUSTEES. 


This  body  is  the  ultimate  governing  power  of  the  bank.  It  is  the 
final  jurisdiction,  from  which  there  is  no  appeal  within  the  banli,  and 
in  fact  there  is  no  appeal  whatever,  for  the  only  remedy  in  case  of 
wrongdoing  is  to  punish  the  trustees  personally,  and  to  remove  them, 
which,  however,  would  not  act  as  a  reversal  of  their  decisions.  They 
are  supreme,  and  responsible  only  to  the  people  of  the  State,  through 
their  representative,  the  Superintendent  of  the  Banking  Department. 
The  board  of  trustees  consists  of  not  less  than  fifteen  nor  more  than 
twenty  members.  Under  the  State  law  not  less  than  thirteen  is  requisite. 
The  board  elects  to  fill  its  own  vacancies  occurring  by  death,  resignation, 
or  neglect  of  duty  for  six  months,  and  its  actions  in  this  respect  cannot 
be  questioned  if  the  record  is  clear. 

Seven  members  of  the  board  constitute  a  quorum,  provided  the 
president,  or  one  of  the  vice-presidents,  be  among  the  number.  The 
entire  government  of  the  affairs  of  the  bank,  from  the  most  minute  de- 
tail up,  is  vested  in  the  board  of  trustees.  The  powers,  which  prac- 
tically are  exercised  by  the  executive  officers  of  the  bank  during  the 
intervals  between  the  sessions  of  the  board,  are  those  delegated  to  them 
by  the  board,  as  expressed  in  its  by-laws.  Some  of  the  duties  cannot  be 
delegated.  A  loan  on  mortgage  can.  only  be  made  upon  vote  of  the 
board,  based  upon  the  report  of  the  committee.  The  rate  of 
dividend  can  only  be  declared  by  the  board  at  its  annual  or  semi-an- 
nual meeting,  and  this  vote  must  be  recorded  by  ayes  and  noes.  If  a 
dividend  exceeding  the  accumulated  earnings  should  be  declared,  it 
would  stand  as  regards  each  individual  depositor,  but  the  trustees  vot- 
ing for  it  would  be  personally  liable  for  the  amount  of  the  excess. 
The  election  of  officers  and  committees  is  another  duty  which  must 
be  exercised  by  the  board  itself.  With  these  exceptions,  the  govern- 
ment of  the  bank  is  discretionary  as  to  means  with  the  boards  of  trus- 
tees, and  they  may  delegate  so  much  of  their  powers  as  they  desire. 
It  becomes  impracticable  to  do  otherwise  as  regards  the  routine  busi- 
ness of  the  bank,  and  the  transactions  in  those  investments  which  are 
of  a  less  permanent  character  than  upon  real  estate  security.  Even 
the  restriction  as  to  loans  on  mortgage  is  found  a  serious  inconveni- 
ence, and  is  believed  to  be  systematically  disregarded  by  many  banks. 


316  PRACTICAL  BANKING. 

Applications  are  acted  upon  after  examination  by  a  committee,  but 
without  previous  submission  to  tlie  board.  The  more  important  of 
the  committees  usually  established  in  a  Savings  bank  are  Finance 
Committee,  the  Attending  Committee,  the  Auditing  Committee,  and 
the  Examining  Committee. 

The  Finance  Committee  is  intermediate  between  the  board  of  trus- 
tees and  the  treasurer,  and  considers  and  acts  upon  the  more  import- 
ant questions  which  arise  in  his  department. 

The  Auditing  Committee  may  be  regarded  as  bearing  a  similar  re- 
lation to  the  secretary.  It  is  required  by  the  by-laws  to  examine 
and  audit  the  vouchers  for  all  payments.  Also  to  count  the  cash  on 
hand  at  least  once  a  month.  The  process  of  auditing  the  vouchers  has 
been  described  under  the  secretary's  duties.  It  may  be  further  said, 
that  in  so  far  as  the  audit  is  intended  as  a  checli  upon  embezzlement, 
it  should  comprise  also  the  cash  receipts  as  well  as  payments.  It 
should  be  ascertained  whether  the  receipts  have  all  been  fully  ac- 
counted for.  Like  all  other  amateur  committees  of  examination,  the 
proceedings  of  this  committee  are  almost  inevitably  perfunctory. 
They  are  very  seldom  thorough — very  seldom  go  to  the  bottom  of  the 
figures  which  they  are  supposed  to  examine.  Having  ascertained 
that  a  certain  amount  of  payment  is  supported  by  the  proper  vouch- 
ers, they  very  seldom  even  enquire  whether  this  is  the  entire  amount  of 
payment  to  be  accounted  for,  vihich  simple  omission  completely  de- 
stroys all  utility  of  the  examination.  The  officer  whose  work  they  are 
supervising  has  only  to  withhold  all  questionable  or  improper  vouch- 
ers from  their  examination.  Such  committees  seldom  take  the  time 
necessary  for  the  proper  performance  of  their  duties,  and  seldom 
possess  the  ability.  They  ought,  in  justice  to  themselves  and  to  their 
trust,  to  employ  skilled  assistants  to  point  out,  at  least,  the  way  in 
which  to  do  their  work  more  thoroughly. 

The  duty  of  the  Examining  Committee  is  to  ascertain  the  precise 
condition  of  the  bank  at  the  close  of  the  semi-annual  period.  An  idea 
of  the  manner  of  performance  of  their  duties  may  be  gathered  from 
the  description  of  the  schedules  furnished  them  by  the  secretary  as  a 
basis  of  their  examination.  One  of  their  number  makes  up  from  the 
figures  thus  ascertained  a  report  to  the  board,  analyzing  the  history, 
results,  and  prospects  of  the  institution.  This  committee  is  also  re- 
quired by  law  to  endorse  upon  the  official  report  made  to  the  Bank  De- 
partment their  affidavit  as  to  its  correctness,  so  far  as  the  report  proper 
or  balance  sheet  goes. 

The  Attending  Committee.  In  the  infancy  of  Savings  banks,  when 
they  were  looked  upon  as  charitable  institutions,  the  members  of  the 
board  of  trustees  attended  in  rotation  at  the  bank;  but  what  they  did 
beyond  lending  a  general  air  of  elderly  benevolence  has  iiever  been 
ascertained.  Where  this  custom  is  kept  up,  they  almost  invariably 
sign  their  names  in  a  large  book,  and  this  is  probably  the  most  im- 
portant of  their  functions.     Such  attendance  inevitably  degenerates 


THE  BOARD  OF  TRUSTEES.  317 

into  a  farce.  In  this  institution  it  has  been  abandoned.  All  members 
of  the  board  of  trustees  are  welcome  at  all  times,  and  even  if  they 
were  not  welcome,  it  would  be  their  duty  to  visit  the  bank,  and  keep 
themselves  informed.  This  many  of  them  do,  and  the  more  irregular 
this  attendance  is  in  point  of  time,  probably  the  better  it  is. 


318  PRACTICAL  BANKING. 


CHAPTER  XI. 


THE   ATTORNEY. 


The  peculiarity  of  Anglo-Saxon  law  with  regard  to  its  arbitrary 
distinctions  between  real  and  personal  property  is  well  illustrated  by 
the  fact  that  a  Savings  banli  can  safely  effect  investments  of  mil- 
lions in  securities  and  valuables  with  only  a  layman's  knowledge,  while 
it  is  impracticable  or  inadvisable  to  stir  in  the  most  unimportant 
transaction  which  regards  real  estate,  without  a  lawyer  at  one's  elbow. 
Yet  the  property  in  the  latter  case  is  more  readily  identified  than  any 
other  in  the  world.  It  is  impossible  to  counterfeit  it;  it  is  the  most 
visible,  most  tangible,  most  impossible  to  secrete,  and  most  exposed  to 
the  public  eye  of  all  property.  Nothing  but  the  barbarous  state  of  our 
laws,  borrowed  from  a  form  of  government  whose  policy  it  is,  of  set 
purpose,  to  prevent  transfers  and  diffusion  of  titles  in  land,  has  caused 
this. 

The  attorney  of  a  Savings  bank  is  not  usually  a  salaried  ofllcer. 
The  greater  part  of  his  services  consist  in  the  examination  of  titles  to 
real  estate,  upon  which  it  is  proposed  to  loan  on  bond  and  mortgage. 
The  law  prescribes  that  the  charges  for  such  services  shall  be  paid  by 
the  borrower.  It  would  in  many  cases  be  to  the  interest  of  the  bank 
to  pay  them  voluntarily,  in  order  to  secxu'e  a  desirable  investment 
or  a  greater  rate  of  interest,  but  the  law,  as  construeu  by  most  Savings 
banks,  prevents  this. 

AVhen  an  application  for  loan  on  bond  and  mortgage  has  been  ac- 
cepted by  the  board  of  trustees,  the  fact  of  this  acceptance  is 
endorsed  upon  it  by  the  secretary  and  the  paper  forwarded  to  the  at- 
torney. The  proposed  borrower  is  notified  to  wait  upon  the  atwmey 
with  the  papers  which  he  may  have  in  support  of  his  title.  The 
amount  charged  by  the  attorney  for  his  services  in  making  the  exami- 
nation are  on  a  scale  fixed  by  the  customs  of  tue  profession,  but  sub- 
ject to  varying  through  negotiation.  Frequently  the  borrower,  espe- 
cially of  late  years,  goes  to  the  attorney  and  says.  "I  will  take  this 
money  of  your  institution  provided  you  do  not  chai'ge  me  more  than 
such  a  sum."  Generally  the  disbursements,  that  is,  amounts  paid  to 
public  officials  for  seai'ches,  constitute  one  portion  of  the  charge,  and 
the  fee  of  the  attorney  for  tlie  labor  and  responsibility  of  certificate 
form  another  portion,  and  this  latter  is  a  fixed  or  sliding  percentage 


THE   ATTORNEY.  319 

upon  the  amount  of  loan.  In  many  rases  the  labor  is  very  slight,  as 
there  may  be  an  abstract  giving  the  chain  of  title  to  a  very  recent 
date,  which  has  only  to  be  copied.  Still  there  is  a  responsibility  on 
the  part  of  the  attorney  for  its  correctness,  and  theoretically,  at  least, 
he  is  supposed  to  be  liable  for  damages  in  case  he  has  not  properly 
performed  his  duty.  The  writer  knows  of  one  case  in  which  the  at- 
torney assumed  the  burden  of  a  defect  in  a  case  where  he  was  really 
careful,  but  where  a  second  person,  of  the  same  name  as  the  owner, 
had  personated  him.  It  is  proper,  in  the  letter  of  instructions  which 
accompanies  the  check  sent  to  the  attorney  to  complete  the  loan  not 
to  direct  him  to  Day  to  a  certain  person,  but  to  pay  to  the  owner  of 
such  property. 

From  the  amount  of  this  check  the  attorney  deducts  the  expenses 
and  charges,  and  pays  over  the  net  proceeds  to  the  borrower,  taking 
his  receipt,  of  course,  for  the  full  amount,  and  giving  him  a  receipt 
for  fees.  The  borrower's  receipt  is  endorsed,  as  already  stated,  on  the 
back  of  the  application.  When  a  mortgage  is  satisfied  or  assigned,  the 
necessary  papers  for  that  purpose  are  drawn  up  by  the  attorney,  and 
he  is  responsible  for  their  correctness,  the  officer  signing  whatever  he 
advises.  A  payment  on  account,  not  being  a  matter  of  record,  is 
effected   without  the  assistance  of  the  attorney. 

In  case  of  foreclosure,  the  matter  is  placed  entirely  in  the  hands 
of  the  attorney  up  to  the  time  of  the  sale.  When  it  comes  to  the 
amount  to  be  paid,  this  is  a  business  matter  which  is  decided  by  the 
officers  of  the  bank.  If  bid  in.  it  is  the  duty  of  the  attorney  to  see  that 
the  title  is  perfected  in  the  bank,  and  the  judgment  is  regularly  en- 
tered for  the  deficiency,  if  any.  a  transcript  of  which  judgment  should 
be  delivered  to  the  bank.  It  is  also  his  duty,  if  advisable,  to  institute 
supplementary  proceedings  in  order  to  execute  this  judgment.  If  a 
purchaser  be  found  for  the  property  held  by  the  bank,  it  is  the  duty  of 
the  attorney  to  draw  up  a  contract  of  sale,  which  generally  stipulates 
that  the  final  delivery  of  the  deed  shall  be  at  his  office,  and  here,  again, 
he  is  responsible  for  the  correctness  of  the  paper. 

Very  few  cases  occur  in  which  the  bank  requires  the  aid  of  coun- 
sel ifi  regard  to  its  money  or  deposits.  Advice  is  sometimes  requisite 
as  to  the  construction  of  the  statute  law.  and  there  is  sometimes  litiga- 
tion arising  from  adverse  claimants  to  moneys  deposited,  or  from  al- 
leged errors  on  the  part  of  the  bank.  A  certain  by-law  which  has 
been  adopted  by  most  of  the  Savings  hanks,  and  which  has  in  the  main 
been  sustained  as  reasonable  by  our  Court  of  Appeals,  has  been  a 
fruitful  source  of  litigation.  This  by-law  is  usually  to  the  following 
effect— that  the  bank  will  endeavor  to  prevent  fraud,  but  any  paj'ment 
made  to  a  person  producing  the  proper  pass-book  shall  be  valid. 
Sometimes  the  expression  is  "will  use  their  best  endeavors,"  and 
this  has  been  construed  to  require  a  much  higher  degi'ee  of  care  than 
demanded  by  the  other  phraseology.  What  constitutes  a  proper 
amount  of  diligence  on  the  part  of  the  bank  is  the  turning  point  of 


320  PRACTICAL  BANKING. 

many  cases,  and  the  question  of  fact  is  usually  submitted  to  a 
jury,  who,  in  the  vast  majority  of  cases,  find  against  the  corporation. 
In  the  cases  of  trust  accounts,  of  associate  accounts,  of  insolvent  de- 
positors, and  depositors  deceased  or  supposed  to  have  deceased,  there 
are  frequently  adverse  claims,  and  the  bank  is  usually  secured  by 
having  the  amount  nominally  paid  into  court  to  abide  the  result  of  the 
action  between  the  other  parties;  but  if  paid  over  to  one  of  the  claim- 
ants, there  is  danger  of  litigation  and  possibility  of  loss.  This  has 
been  the  case  even  where  money  was  paid  over  on  genuine  letters 
of  administration  granted  upon  the  effects  of  a  person  believed  to  be 
dead,  but  who  inopportunely  appeared  and  had  to  be  paid  a  second 
time. 


STATE  SUPERVISION   AND   REPORTS.  321 


CHAPTER  XII. 


STATE  SUPERVISION  AND  REPORTS. 


In  many,  but  not  all  of  the  States,  officers  are  appointed  for  the 
purpose  of  supervising  and  regulating  Savings  and  other  banks  and 
their  affairs.  In  New  York  State*  no  Savings  bank  can  be  organized 
hereafter  without  the  assent  of  the  Superintendent  of  the  Banking  De- 
partment, and  there  seems  to  be  no  appeal  from  his  decision.  Dur- 
ing the  existence  of  the  Savings  bank  it  is  subject  to  his  inspection 
by  means  of  examinations  and  reports,  as  follows: 

A  semi-annual  report,  as  already  described  under  the  duties  of  the 
secretary. 

A  special  report  on  any  subject  and  at  any  time  required  by  him. 

An  examination  by  himself  or  by  deputies  once  in  two  years. 

A  special  examination  whenevei",  in  his  judgment,  it  shall  be 
necessary. 

The  expenses  of  special  examinations  are  borne  by  the  corpora- 
tion examined.  Those  of  the  regular  examinations  and  other  expenses 
of  the  department  are  borne  by  the  corporations  in  proportion  to  their 
size,  and.  finally,  the  remedies  in  the  hands  of  the  Superintendent  in 
case  of  improper  action,  are,  first,  the  publicity  effected  through  his 
report  to  the  Legislature,  and.  second,  his  power  to  make  complaint 
through  the  Attorney-General  in  case  of  violation  of  law,  or  improper 
exercise  of  corporate  powers;  and  the  remedies  which  may  be  a^- 
plied  by  the  court  upon  this  proceeding  are:  Removal  of  the  board 
of  trustees  or  any  of  their  number;  appointment  of  receiver  and  dis- 
solution of  the  corporation,  or  the  consolidating  of  the  institution  with 
a  similar  one  which  may  be  willing  to  accept  the  transfer.*  *  *  The 
Superintendent  has  recently  been  given  supervision  over  the  receivers 
of  failed  Savings  banks,  who  are  now  required  to  report  to  him,  and 
he  has  been  made  the  custodian  of  any  unclaimed  balances  which  the 
receiver  may  have  on  hand  in  favor  of  depositors  at  the  termination 
of  his  receivership.     Thus,   during  the  existence  of  a   Savings  bank 


♦All  institutions  of  the  kind  within  the  State  are  made  subject  to 
its  control,  and  a  penalty  is  imposed  for  any  person  receiving  or  offer- 
ing to  receive  Savings  deposits  in  any  town  where  there  is  an  organ- 
ized Savings  bank. 


322  PRACTICAL   BANKING. 

the  Superintendent  has  no  positive  governing  povrer  over  its  acts,  but 
is  the  head  of  a  bureau  of  information.  He  himself  has  no  power  to 
remove  trustees,  or  to  annul  any  of  their  acts,  but  the  moral  power 
given  by  his  authority  for  compelling  information  is  probably  bene- 
ficial. 

The  problem  of  State  supervision  is  a  very  difficult  oue.  A  super- 
vising department  like  the  one  under  consideration  usually  becomes, 
after  a  time,  a  mere  bookkeeping  department,  and  if  the  reports  of 
the  several  institutions  check  off  correctly  on  his  summaries,  as  found 
by  the  clerks  in  his  department,  the  Superintendent  goes  no  further, 
but  devotes  his  time  to  the  more  congenial  and  dignified  pursuits  of 
practical  politics.  This  is  without  any  evil  consequences  in  peaceful 
times,  when  there  is  no  financial  embarrassment,  and  everything  goes 
swimmingly,  but  usually  the  same  let-alone  policy  is  continued  from 
the  force  of  inertia,  into  a  period  when  the  times  begin  to  grow 
shaky,  and  generally  the  superintendent  awakes  to  find  that  his  rose- 
colored  reports,  for  some  time  past,  have  been  delusive.  Then  there 
will  be  a  reaction  from  King  Log  to  King  Stork,  and  the  state  of  the 
most  prudently  managed  institutions  will  be  looked  upon  with  sus- 
p  cion,  and  very  likely  some  unnecessary  wrecks  will  be  the  conse- 
quence. This  was  the  case  in  the  period  of  financial  reaction,  which 
followed  our  Civil  War  and  reconstruction  period,  and  presumably  its 
history  will  repeat  itself. 

There  is  one  very  important  lack  in  the  system  of  reports  as  now 
carried  on.  There  is  nothing  corresponding  to  a  profit  and  loss  ac- 
count. There  is  nothing  to  show,  analytically,  whether  the  dividend 
which  has  been  paid  to  depositors  has  been  earned  during  the  period 
covered,  or  whether  it  is  subtracted  from  the  previous  reserve; 
whether  it  is  strictly  from  the  income,  or  whether  incidental  gains 
have  been  relied  upon  to  help  it  out.  Such  an  account  should  be  re- 
quired from  every  Savings  institution,  and  should  be  most  carefully 
scrutinized.  In  doing  so  rhere  is  a  very  Important  element  which  may 
raadily  prove  deceptive.  It  is  the  question  of  premiums  on  stock  in- 
vestments. Let  us  suppose  that  the  normal  rate  of  interest  on  money 
is  about  four  per  cent.,  and  that  it  does  not  vary  much  from  that 
figure  on  fair  security,  and  let  us  suppose  that  a  municipality  has  is- 
sued its  bonds,  bearing  ten  per  cent,  interest,  and  payable  in  twenty 
years.  Let  us  again  suppose  tliat  anotlier  municipality  has  issued  its 
bonds,  bearing  five  per  cent,  interest,  and  payable  in  ten  years,  that 
another  one  has  issued  three-per-cent.  bonds,  payable  in  fifteen  years. 
We  are  assuming  that  the  security  in  all  these  cases  is  as  good  as 
anything  human  can  be.  In  case  of  the  ten-per-cent.  bond  running 
twenty  years,  it  Is  evident  that  there  is  an  extra  interest  of  about  six 
per  cent.,  which  is  to  be  collected  every  year  above  the  market  rate. 
Therefore,  the  longer  this  thing  continues  tlie  more  valuable  is  the 
bond,  and  we  shall  indisputably  find  tliat  it  bears  a  proportionate  pre- 
mium.    The  value  is  not  expressed  by  the  par  $100.     It  is  the  present 


STATE  SUPERVISION   AND   REPORTS.  323 

worth  of  $100  due  twenty  years  from  now  x  the  present  worth  of  $10 
due  one  year  from  now,x  the  present  worth  of  $10  due  two  years,  x 
the  same  at  three  years,  x  etc..  and  in  order  to  be  perfectly  accurate 
these  present  worths  must  be  computed  at  compound  interest,  and 
this  computation  must  be  semi-annual  or  annual,  according  to  the 
terms  of  the  bond.  The  five-per-cent.  bond  would  not  be  worth  so 
much,  both  because  there  is  a  smaller  excess  of  interest  over  the  mar- 
ket rate,  and  because  this  excess  continues  to  run  for  a  shorter  time. 
The  three-per-ceut.  bond  would  be  worth  still  less.  In  this  case  there 
is  a  deficiency  of  iuterest  which  the  buyer  should  be  compensated  for 
now,  and  the  longer  it  has  to  run  at  three  per  cent,  the  worse  off  is  the 
purchaser;  therefore,  this  bond  would  be  worth  less  than  par.  Now, 
it  has  been  claimed  that  the  true  measure  of  the  surplus  of  a  Savings 
bank,  as  far  as  its  stock  investments  are  concerned,  is  the  nominal 
or  par  value  of  those  investments.  That  is  to  say,  a  bank  having 
seven-per-cent.  bonds  to  a  certain  amount  is  no  better  off  than  one 
liaving  3.65-per-cent.  bonds  A  bank  whose  seven-per-cent.  b  )m"s  ma- 
ture next  year  is  no  stronger  than  one  where  the  seven-per-cent. 
bonds  have  twenty-five  years  to  run. 

The  advocates  of  this  theory  consider  that  they  are  acting  on  the 
safe  side.  Thej'  consider  the  premium  as  a  loss,  once  for  all;  there- 
fore, at  a  period  of  buying,  they  would  cut  down  the  dividend  to  de- 
positors, perhaps  to  nothing,  simply  because  the  institution  has  been 
making  favorable  investments.  On  the  other  hand,  in  subsequent 
after  years,  they  would  treat  the  entire  revenue  from  these  bonds  as 
;  11  profit,  and  thus  the  depositors  at  this  time  would  receive  more  than 
would  be,  on  the  other  theory,  the  fair  earnings  of  their  money. 

Another  plan  is  to  hold  the  stocks  at  the  amount  they  cost.  By 
this  means  the  loss,  instead  of  being  thrown  upon  (be  year  in  which 
they  were  purchased,  is  thrown  into  the  year  during  which  they  are 
sold  or  redeemed,  and  this  is  a  still  more  dangerous  way  of  looking 
at  it.  In  the  former  plan  the  stocks,  if  worth  above  par,  as  they 
usually  are,  are  steadily  undervalued,  while  in  this  method  they  are 
overvalued,  in  all  probability,  during  most  of  the  time  they  are  held. 
In  one  case  there  is  a  fallacious  calculation  of  curreu  earnings;  in 
the  other  case,  there  is  a  fallacious  estimate  of  surpljs  in  reserve. 
The  true  principle  would  seem  to  be  that  each  year  or  half  year  an 
equitable  portion  of  the  amount  paid  for  premiums,  or  conversely,  of 
the  amount  received  for  discount,  should  we  wiped  out,  so  that  the 
dluerences  between  par  and  market  value  would  steadily  and  grad- 
ually disappear  as  the  bond  approached  its  maturity.  Thus,  the  ten- 
per  cent,  bond  of  which  we  spoke  would  be  c  )nsidered  as  earning 
each  year,  the  rate  to  which  its  cost  price  would  be  equivalent  when 
averaged  over  the  term— say  four  and  a-half  per  cent.  The  remaining 
five  and  a-half  per  cent,  should  not  be  considered  as  earnings,  but  as 
an  offset  to  the  depreciation  of  bond,  or  a  refunding  to  us  of  extra 
premium,  which  we  paid  for  an  abnormally  high  rate  of  intere«;t,  and 


324  PRACTICAL  BANKING. 

while  this  is  true  in  theory  it  can  be  empirically  tested  by  the  state 
of  the  market.  It  will  be  found  that,  making  allowance  for  the  shift- 
ing productiveness  of  money  and  some  other  disturbing  element,  such 
as  public  confidence,  that  the  market  price  of  a  security  will  settle 
in  about  this  manner:  That  each  year  there  will  be  a  depreciation, 
amounting  approximately  to  the  difference  between  the  current  rate 
of  interest  on  that  kind  of  securities  and  the  revenue  actually  pro- 
duced. We  would  therefore  enunciate  this  formula  for  ascertaining 
the  true  earnings  from  stock  investments.  From  the  cash  income 
(a)  received  subtract  such  part  (b)  of  the  premium,  as  will  progres- 
sively consume  the  entire  premium  at  the  date  of  maturity.  The  dif- 
ference is  the  current  earnings  (c). 

Again,  take  the  difternce  between  the  market  value  (d)  at  the  be- 
ginning of  the  period,  and  the  market  value  (e)  at  the  close  of  the 
period.  The  difference  between  d  and  e  is  the  gross  depreciation  (f), 
or  the  gross  appreciation  (— f). 

Combining  b,  taken  negatively,  with  f,  or  — f,  we  have  the  inci- 
dental or  speculative  loss  or  gain  (p.  or  — p). 

P=  X/  -b. 
-p=-f-b. 

Thus   there   Avill   be   four  cases. 

First.— A  gross  depreciation  equal  to  the  amount  of  premium  writ- 
ten off.     Here  there  is  no  loss  nor  gain. 

Second.— A  depreciation  greater  than  the  amount  of  premium 
written  off.  Here  there  is  an  incidental  loss  to  be  taken  from  the 
surplus. 

Third.— A  gross  depreciation  less  than  the  amount  of  premium 
written  off.  In  this  case  there  is  an  incidental  gain  or  a  real  ap- 
preciation. 

Fourth.— An  appreciation  which,  together  with  the  premium  writ- 
ten off,  is  always  an  incidental  gain. 


Our  examination  of  the  functions  of  a  Savings  bank  brings  us  Xo 
the  conclusion  that  it  is  simply  a  money  making  corporation— an  as- 
sociation of  small  capitalists  who  combine  for  the  purpose  of  having 
their  small  investments  possess  an  earning  power  by  aggregation.  The 
officers  and  employes  of  the  Savings  bank  are  merely  their  agents  in 
this.  The  entire  resources  of  the  bank,  whether  credited  to  depos- 
its or  to  surplus,  are  the  absolute  property  of  depositors  as  an  asso- 
ciation. The  trustees  are  a  body  whose  constitution  is  somewhat 
anomalous,  being  the  unpaid  custodians  of  money  not  their  own,  but 
whose  duties  are  assumed  as  a  public  burden  and  as  a  distinction. 
This  latter  peculiarity,  the  constitution  of  a  board  of  trustees,  which 
U  independent  of  the  real  pro^jrietors  of  the  concern,  seems  to  me  the 


STATE  SUPERVISION  AXD  REPORTS.  32.") 

only  point  which  pivps  a  Savings  bank,  as  now  organized,  a  right  to 
bo  called  a  benevolent  institution.  It  is  benevolent  for  tlie  trustees 
to  give  their  time  and  services  without  compensation  in  the  manage- 
ment of  the  money  of  others.  It  is  not  benevolence,  however,  to  in- 
vest a  man's  money  and  pay  him  over  the  proceeds.  Although  in 
practice,  this  plan  of  organization  has  worked  better  than  the  one 
where  there  is  a  body  of  stockholaers  whose  capital  is  substituted  for 
a  surplus  as  guaranteed  to  depositors,  yet  it  is  by  no  means  proved 
that  the  advantage  would  not  be  on  the  side  of  the  latter  form,  which 
eliminates  all  pretense  of  benevolence,  and  makes  the  Savings  bank 
what  we  believe  it  to  be.  a  pure  matter  of  business.  Of  the  three 
forms  of  associated  saving,  viz..  the  mutual,  which  we  have  described 
at  length,  the  stock,  or  business-iike  form,  which  we  have  just  touched 
upon,  and  the  governmental,  which,  of  late  years,  is  becoming  the 
subject  of  experiment,  time  alone  can  decide  which  will  survive  as 
the  fittest. 


326  PRACTICAL   BANKING. 


CHAPTER    XIII. 


HOW    INVESTMENTS    SHOULD    BE    MADE. 


We  shall  devote  this  chapter  to  giving  some  of  the  rules  re- 
lating to  Savings  banks'  investments.  The  Legislatures  of  the  sev- 
eral States  have  adopted  regulations  on  this  subject,  thus  lightening 
the  responsibility  of  Savings  bank  directors.  These  regulations  are 
the  outcome  of  a  conservative  spirit,  and  should  be  observed.  Never- 
theless, a  wide  latitude  exists,  which  cannot  be  completely  traversed 
by  Legfslative  regulation.  To  a  very  important  degree  the  directors 
must  exercise  their  own  wisdom  in  making  investments.  The  follow- 
ing remarks  on  this  subject  were  made  by  Mr.  Washington  B.  Wil- 
liams at  the  annual  meeting  of  the  American  Bankers'  Association 
in  1882.  They  are  worthy  the  attentive  study  of  those  who  are  en- 
trusted with  the  duty  of  investing  the  funds  of  these  institutions. 

Safety  is  the  first  consideration,  and  profit  is  secondary.  Again, 
Savings  banks  are  not  confined  to  investments  which  are  readily 
convertible.  Here,  also,  safety  comes  first;  convertibility  is  of  minor 
importance. 

Mortgages  on  real  estate,  being  less  readily  convertible  than 
some  other  securities,  bear  higher  interest.  At  the  same  time,  no  prop- 
erty is  more  stable  in  value,  and  none  less  likely  to  depreciate,  than 
real  estate.  Neither  the  recent  general  depression  from  former  in- 
flated values,  nor  any  special  instances  of  loss,  affect  the  truth  of 
this  general  proposition. 

Mortgages  on  real  estate,  accordingly,  have  always  been  a  favor- 
ite kind  of  investment  for  Savings  banks.  They  have  other  advan- 
tages, in  not  being  readily  subject  to  theft  or  misappropriation;  and 
the  laws  of  the  several  States,  as  well  as  the  general  rules  by  which 
courts  govern  and  control  trustees,  declare  this  mode  of  investment  to 
be  the  most  desirable. 

Taxes  are  high  in  this  country,  are  thrown  heavily  on  real  es- 
tate, and  are  generallj'  paramount  to  mortgages.  To  secure  prompt 
payment  of  interest  and  taxes,  the  property  mortgaged  ought  gen- 
erally to  be  Improved  and  productive  of  rent. 

The  Savings  bank  law  of  New  York  allows  the  investment  of  not 
over  60  per  cent,  of  the  deposits  in  such  mortgages.     That  of  New 


HOW   INVESTMENTS  SHOULD  BE  MADE.  327 

Jersey  allows  70  per  cent.,  aud  these  serve  to  indicate  the  general 
rule. 

By  examiuiug  the  reports  as  to  the  Savings  banlis  of  the  several 
States  it  will,  however,  be  found  that  the  Savings  banks  of  New 
England  invest  not  over  35  per  tent,  of  their  trust  funds  in  mort- 
gages, aud  those  of  New  York  City  a  less  proportion. 

The  best  conducted  Savings  bank  in  Jersey  City.  N.  J.,  which  has 
passed  safely  all  the  depressions  and  panics  of  thirty  years,  has 
generally  maintained,  aud  still  maintains,  its  mortgage  investments  at 
over  Go  per  cent.,  of  a  ileposit  line  of  over  $5,000,000. 

These  different  usages,  though  they  doubtless  result  from  more 
than  oue  cause,  yet  point  with  sutlicient  clearness  to  this  important 
rule:  Taxation  should  be  so  adjusted  as  in  no  wise  to  deter  Sav- 
ings banks  from  freely  investing  in  mortgages  on  real  estate.  It  is 
a  most  unwise  policy  as  to  the  interests  of  the  industrial  classes  to 
drive  Savings  banks  out  of  this  mode  of  investment.  It  is  the  mode 
which  is  at  once  solid  in  basis,  understood  by  and  acceptable  to  the 
depositors,  and  beniticial  to  them  and  the  community  where  the  sav- 
ings arise,  by  re-distributing  the  savings  in  the  form  of  loans.  Such 
investments  ought  not  to  be  taxed,  even  if  it  should  become  neces- 
sary to  accord  a  special  preference  in  this  respect  to  Savings  banks. 
These  institutions  represent  the  industry  and  frugality  of  the  masses, 
and  every  effort  should  be  made  to  put  them  on  the  soundest  footing. 
In  my  belief,  nothing  can  so  surely  do  this,  and  so  certainly  retain 
confidence,  as  to  encourage,  facilitate  and  require  the  investment  of 
the  savings  deposits  in  mortgages  properly  secured  on  the  farms,  the 
shops,  and  the  homes  of  the  people.  If  these  are  not  real  values,  what 
are?  How  can  mere  promises  to  pay  by  the  same  people,  either  in- 
dividually or  collectively,  be  any  better? 

It  is.  then,  to  be  regarded  as  a  prime  duty  of  legislators  to  so 
regulate  taxation  as  to  encourage,  not  deter,  investments  by  Savings 
banks  in  loans  on  real  estate. 

A  trustee  should  take  no  risks  that  can  be  avoided.  If  he  acts  on 
this  rule,  he  is  discharging  his  full  duty.  If  he  violates  it,  although 
from  good  motives,  if  he  allows  his  confidence  in  his  own  skill  in 
choosing  among  the  many  ordinary  investments  in  the  market  to 
lead  him  to  transcend  it,  he  would  be  restrained  by  injunction  by  any 
court  having  jurisdiction  of  trusts,  even  if  the  particular  investment 
were  a  successful  oue.  High  rates  of  intei-est  are  quite  a  secondary 
matter. 

In  order  to  avoid,  then,  as  far  as  possible,  all  temptation  to  do  more 
than  one's  duty,  as  trustee,  or  to  manifest  special  financial  skill,  or 
to  make  the  earning  of  interest  paramount  to  absolute  safety,  we 
would  adopt  certain  rules. 

Large  deposits,  which  do  not  come  from  savings,  but  which  are 
the  capital  of  persons  who  have  acquired  wealth,  should  be  rejected. 


328  PRACTICAL  BANKING. 

They  can  invest   their  own  funcls.   and  they  are  lilvely  to  withdraw 
their  deposits  suddenly  and  in  large  sums. 

Bonuses  and  discounts  on  buying  securities  should  not  be  sought 
or  allowed.  They  tend  to  drive  away  the  best-secured  loans,  and  to 
introduce  a  speculative  habit  of  loolviug  at  the  immediate  apparent 
gain  rather  than  the  ultimate   security. 

Good  mortgages  on  improved  real  estate,  to  about  half  its  value, 
should  be  encouraged  and  granted  up  to  the  highest  legal  limit, 
without  fear.  If  necessary,  the  rate  of  interest  on  these  should  be 
reduced,  so  as  to  secure  the  very  best  of  that  class  of  investments. 

Would  this  be  safe  in  case  of  a  run  on  the  bank? 

It  would  for  several  reasons: 

First.— The  remaining  35  per  cent,  and  upwards  of  convertible 
securities  would  be  available. 

Second.— Such  mortgages,  though  not  properly  available  at  par, 
are  always  excellent  securities  to  borrow  on  temporarily  to  meet  such 
emergencies. 

Third.— The  mortgage-investments  being  to  a  large  extent  loans 
among  the  same  community  which  affords  the  depositors,  there  is  a 
powerful  influence  at  work  to  sustain  confidence  in  the  assets  of  the 
bank. 

But.  as  a  further  means  of  safety  to  all,  the  bank  should  never 
hesitate,  in  case  of  panic,  to  enforce  its  thirty,  sixty  or  ninety  day 
rule,  as  the  case  may  be,  or  to  close  its  doors.  It  is  nothing  but  the 
common  agent  or  trustee  of  the  depositors,  who,  as  above  shown, 
have  a  common  interest  in  its  funds  and  investments.  It  has  no 
financial  reputation  to  keep  up  as  a  source  of  px'ofit  to  itself  or  to 
attract  deposits.  Its  whole  duty  is  summed  up  in  the  one  word 
"safety." 

A  trustee  has  neither  moral  nor  legal  right  to  sacrifice  a  part  of  the 
common  assets  in  order  to  give  an  advantage  to  those  of  the  com- 
mon proprietors  who  first  run  to  his  door.  A  court  having  jurisdic- 
tion of  trusts  would  restrain  him  by  injunction  from  thus  violating 
his  prime  duty  of  taking  care  of  the  common  property  for  the  com- 
mon benefit.  Some  special  charters  of  Savings  banks  expressly  pro- 
vide for  such  action.  I  think  the  power  and  duty  of  the  courts  plainly 
arises  out  of  the  nature  of  the  trust.  But  to  avoid  all  question  it 
should  be  provided  for  by  proper  legislation  wherever  this  ordinary 
class  of  Savings  banks  exists. 

The  salutarj'  effect  of  such  judicial  action  is  at  once  apparent. 
The  bank  stands  in  this  emergency  like  any  other  trustee  who  seeks 
the  direction  and  protection  of  the  courts. 

They  will  stop  any  ill-advised  suits,  hold  back  every  hostile  hand, 
and  open  the  doors  again  and  direct  payment  by  installments  if  pru- 
dence so  indicates.  This  is  the  best  and  safest  way  for  real  savings 
depositors,  and  meets  all  their  actual  needs  in  the  supposed  case  of 
a  panic.    In  the  meantime,  the  assets  are  producing  their  regular  in- 


HOW   INVESTMENTS  SHOULD   BE  MADE.  320 

come,  there  are  no  sacrifices  of  securities,  the  ignoraut  aud  alarmed 
depositors  are  protected  against  loss,  aud  none  gets  an  advantage 
over  the  other,  and  the  l)ank  tinally  resumes  without  injury. 

Too  much  unwillingness  to  adopt  this  safe  and  just  course,  if  it 
becomes  necessary,  would  savor  of  a  desire  to  do  more  than  the  duty 
of  a  trustee;  a  course  neither  incumbent,  nor,  indeed,  justifiable. 

As  a  corollary  to  this  view,  would  come  the  rule  of  giving  all 
due  publicity  to  the  affairs  and  investments  of  the  bank,  at  least 
as  to  its  class  and  kind  of  investments  and  their  amounts.  Inquiry 
was  recently  made  of  a  Savings  bank  in  the  City  of  New  York  for  a 
statement  of  this  character,  such  as  is  made  public  in  many  banks, 
and  is  required  by  law  once  or  twice  a  year  in  some  States.  The 
answer  given  waSs  that  that  bank  made  no  such  statements,  and 
that  the  names  of  its  trustees  were  sufficient  guarantees  to  the  pub- 
lic of  its  soundness  and  good  management.  I  need  not  say  that  such 
views  are  contrary  to  the  true  position  and  office  of  a  Savings  Bank. 

Investments  in  expensive  buildings  should  be  avoided.  In  many 
cases,  the  whole  apparent  surplus  will  be  found  to  be  absorbed  in 
an  unproductive  banking-house. 

Government  bonds  are  the  safest  of  convertible  investments,  and 
so  are  generally  the  bonds  of  the  State  in  which  the  bank  is  situated. 
They  may  be  guarded  against  the  ordinary  chances  of  fire  and  theft 
by  well  known  precautions,  such  as  registry,  stamping,  etc.,  but  the 
low  rate  of  interest  which  they  must  henceforth  produce  renders  it 
very  desirable  to  see  if  the  field  can  be  extended  without  losing  sight 
of  our  cardinal  rules. 

It  must  be  conceded  that  personal  security  of  two  or  more  names 
is  not  admissible,  notwithstanding  the  custom  of  many  New  Eng- 
land Savings  banks  to  accept  such  security.  Not  only  is  this  usage 
entirely  opposed  to  the  general  law  of  trusts  as  established  by  the 
experience  of  two  centuries,  but  it  leads  to  complications  aud  temp- 
tations outside  of  the  line  of  duty  which  directors  of  a  Savings  bank 
ought  to  confine  themselves  to. 

Stocks  of  railway  and  manufacturing  corporations  must  also  be 
excluded.  In  fact,  railway  management,  as  to  treatment  of  stockhold- 
ers and  value  of  stock,  is  now  almost  synonymous  with  deception 
and  fraud.  If  there  are  exceptions,  they  serve  to  establish  the  general 
rule. 

As  to  other  corporations,  the  value  of  their  stock  depends  so  much 
on  the  changing  market,  on  the  course  of  mechanical  invention,  on 
the  individual  qualities  of  the  managers,  that  it  is  too  unstable  for 
our  present  purpose. 

Railway  bonds,  secured  by  first  mortgage  on  the  entire  road, 
would  seem  a  safe  class  of  investment  Avith  the  exercise  of  ordi- 
nary prudence,  and  at  one  time  were  largely  taken  by  some  Savings 
banks.     So  vast  and  so  constantly  increasing  are  these  great  internal 


330  PRACTICAL  BANKING. 

improvements,  so  enormous  the  flow  and  reflow  of  business  over  them, 
so  immense  the  probable  development  of  that  business  in  the  future, 
that  such  mortgages,  if  they  could  be  had  at  a  proper  rate  per  mile, 
would  be  among  the  safest  of  investments,  assuming  reasonable  care 
in  selecting  those  of  apparently  permanent  value.  There  is  difficulty 
in  ascertaining  the  history,  legal  position  and  amount  of  such  mort- 
gages, but  not  so  great  as  to  be  insurmountable.  The  great  objec- 
tion is  to  the  extravagant  amount  per  mile  of  the  bonds  issued  in 
many  cases,  compelling  after  a  while  the  bondholders  to  take  the 
road.  It  is  always  an  undesirable  thing  for  a  trustee  to  be  compelled 
to  enter  into  a  current  business  with  the  trust  funds. 

Municipal  indebtedness  has  attained  large  proportions  in  this 
country,  and  has  long  furnished  a  field  for  private  and  corporate 
investment.  Experience  has  fully  shown  that  we  must  strike  out 
from  the  list  of  Savings  bank  investments  all  municipal  bonds  is- 
sued in  aid  of  any  railway  undertaking.  The  Legislatures  of  several 
States  have  recognized  this,  and  after  once  allowing  such  invest- 
ments by  Savings  banks  have  very  judiciously  forbidden  them. 

Subject  to  this  exception,  the  public  debt  of  local  municipalities 
within  the  State  where  the  Savings  bank  is  located,  is  a  sound  class 
of  investment,  assuming,  of  course,  the  exercise  of  due  care  in  the  in- 
vestigation of  the  origin  and  aggregate  amount  of  such  debt.  You 
have  the  savings  of  many  voters  in  your  care.  If  invested  in  ap- 
parently sound  municipal  obligatious,  there  is,  besides  legal  reme- 
dies, a  great  force  of  public  opinion  to  sustain  your  claim,  and  to 
bring  about  proper  provision  for  payment  of  interest  and  principal. 
Experience  shows  that  such  debts,  when  not  disproportionately  large, 
or  the  result  of  some  arbitrary  and  unpopular  scheme,  have  been 
among  the  safest  investments  we  have  had. 

It  is  evident  that  we  must  look  elsewhere  than  to  Government 
bonds  alone  for  interest  paying  securities.  The  directions  to  look 
in  are  (1)  mortgages  on  productive  real  estate  to  a  high  percentage 
of  the  total  investments;  (2)  well  selected  municipal  obligations;  (3) 
selected  railway  first  mortgages. 

Those  to  avoid  are  (1)  real  estate  of  merely  speculative  value,  and 
unimprovetl;  (2)  capital  stock  of  railways  or  manufacturing  corpora 
tions;  (3)  personal  security;  (4)  railway  aid  bonds,  and  municipal 
bonds  where  the  debt  is  large  in  proportion  to  the  resources,  or  is  the 
result  of  too  sanguine  speculation  on  the  future. 

Call-loans  on  deposit  of  collaterals  form  a  large  part  of  the  busi- 
ness of  some  city  Savings  banks.  No  doubt,  in  a  large  commercial 
center,  these  may  be  safely  and  quickly  made.  The  objection  to 
them  is  that  they  tend  to  throw  the  whole  management  and  selec- 
tion of  investments  into  the  hands  of  some  one  person.  However 
efficient  such  management  may  be  for  a  time,  we  know  that  most 
great  disasters  have  also  arisen  from   this.     Other  investments,  such 


HOW   INVESTMENTS  SHOULD   BE   MADE.  XJl 

.IS  mortgage  loans,  or  tlio  purchase  of  securities,  are  usually,  in  well- 
maua.iixeil  bauks,  passed  upon  by  a  board  or  committee.  This  old-fogy 
method  is  the  safest,  and  so  far  as  practicable  should  be  followed  by 
institutions  whose  paramount  object  is  safety.* 

Some  New  England  and  other  Savings  banks  have  loaned  funds 
on  mortgages  on  lands  in  other  States.  There  is  no  reason  why  such 
loans  on  suitable  and  proper  security  should  not  be  as  good  and  safe 
in  Massachusetts  as  in  New  York;  but  there  is  a  great  difficulty  in 
being  assured  that  you  are  getting  proper  security.  At  home  your 
own  board  or  your  own  investment  committee  can  judge,  depositors  are 
more  or  less  familiar  with  your  securities,  the  risk  of  acting  on  other 
men's  judgment  removed  from  your  own  responsibility  is  avoided,  your 
risk  is  less,  your  certainty  of  protection  by  the  courts  is  greater. 
Prudence  dictates  that  even  in  these  days  of  easy  locomotion  and  of 
assimilating  business  and  values,  you  should  not  extend  your  reach 
too  far  and  get  beyond  the  range  of  your  own  vision  and  your  own 
capacity  to  judge  and  act.  It  may  be  the  office  of  a  good  judge  to 
enlarge  his  jurisdiction,  but  it  is  not  the  duty  of  a  prudent  trustee. 

The  same  reasons  will  apply  to  distant  municipal  and  railway  se- 
curities. And  caution  should  be  exercised  in  going  beyond  your  own 
State  as  to  any  debt  of  local  municipalities.  My  own  view  is  that 
this  should  be  prohibited,  except,  perhaps,  in  certain  cases,  such  as 
well-known  large  cities  whose  affairs  are  conducted  on  a  sound 
basis,  and  with  the  advantage  of  the  best  business  talent.  This  is 
true  of  Boston,  New  York.  Philadelphia  and  others,  and  is  not  af- 
fected by  the  fact  that  they  have  also  been  now  and  then  attacked  by 
municipal  thieves. 


*A  startling  instance  of  the  danger  of  this  call-loan  method  has 
recently  occurred   in  the  Newark    Savings   Institution   now   insolvent. 


333 


PRACTICAL  BANKING. 


CHAPTER  XIV. 
THE  SMALL  SAYINGS  BANK. 

The  methods  of  bookkeeping  and  daily  routine  which  we  have  de- 
scribed are  such  as  are  adapted  to  use  in  institutions  of  considerable 
size  and  importance,  and  which  involve  the  principles  that  necessarily 
govern  the  methods  of  the  very  largest.  It  was  thought  better  to 
furnish  a  very  complete  scheme  from  which  smaller  institutions  could 
select  so  much  as  suited  their  requirements,  than  to  cut  down  the 
plan  to  what  would  be  insufficient  for  more  extended  business. 

It  is  advisable  to  keep  in  view  the  expansion  of  business  which 
is  always  hoped  for  and  generally  is  realized  in  such  an  institution, 


CASH   BOOK  AND  JOURNAL. 


FORM    385. 

n 

1 ■ ^ 

Withdrawn 

Folio 

Booli  No. 

NAMES 

Folio 

Deposits 

..JDn^ 

ANOTHER  FORM   OF  CASH  BOOK  AND  JOURNAL. 

1R9 

C^. 

Book  Nol  a. 

nrr 

Fol 

ITEMS 

Fol 

l„di,ld..l 

0.".'«1 

(Book  STs.-ip,, 

Fol 

ITDllS 

Fol 

[Dditidual 

Q.o.ril 

"=■ 

1 

1 

--  — ] 

!  II 

and  keep  rather  in  advance  of,  than  behind,  present  needs.  Regard 
should  be  had,  also,  to  the  chances  which  the  location  and  surround- 
ings present  for  growth. 

We  will  now  consider  what  is  the  minimum  of  bookkeeping  ma- 
chinery for  a  savings  bank  beginning  its  business  in  a  modest  way, 
without  expectation  of  any  very  rapid  growth.  Usually  one  man 
will  at  first  perform  all  its  clerical  work  and  things  must  be  made 
as  compact  as  possible  for  him,  without  loss  of  clearness. 


THE  SMALL  SAVINGS  BANK.  333 

I  think  that  the  necessary  books  cannot,  with  safety,  be  re- 
duced below  the  following  list:  Cash  Book,  Ledger  (Investments  and 
General)  Depositors'  Ledger.  Signature  Book,  Minute  Book,  and  Re- 
port Book,  and  that  the  system  of  tickets  or  documents  relating  to 
each    transaction   sliould  be   inaugurated   from   the   first. 

The  Casii  Book  may  be  used  for  depositors'  receipts  and  payments 
as  well  as  for  those  relating  to  investments,  etc.  Using  double  col- 
umns on  each  side,  the  receipts  would  be  inserted  in  the  left-hand 
column,  and  the  daily  total  in  the  right  hand,  thus: 

"Received   from   Depositors. 

23.    J.    Smith     .?  .5  00 

39.    P.    Robinson    10  00 

65.    J.    Wilkins     20  00 

Total    for   day    $35  00" 

Similarly,  the  payments  to  depositors  would  be  entered  in  the 
credit  columns. 

Tbe  Cadh  Book  when  kept  in  this  simple  form  should  be  bal- 
anced daily  in  ink,  and  a  statement  of  the  components  of  the  cash- 
balance   should   be   recorded. 

The  Cash  Book  would  probably  be  posted  daily.  An  exception, 
however,  might  be  made  of  the  transactions  with  depositors  which 
would  if  posted  daily  make  the  Depositors'  account  in  the  Ledger  too 
voluminous.  To  avoid  this,  at  the  close  of  each  mouth's  cash  en- 
tries, take  a  double  page  and  head  one  side  '"Received  from  Deposit- 
ors. January,  1809,"  and  the  other  "Paid  to  Depositors,  January. 
1899."  Then  the  total  may  be  posted  in  one  sum  on  each  side  of  the 
ledger.  This  is  not  merely  to  save  time  and  space,  but  to  make  the 
account  more  comprehensive  and  graphic.  A  comparison  of  this 
month's  business  with  that  of  the  same  month  a  year  ago  is  instruc- 
tive; much  more  so  than  comparing  two  days. 

The  journal  requires  very  little  space  and  we  should  recommend 
setting  aside  a  few  pages  in  the  Cash  Book  at  the  beginning  of  each 
six  months  for  the  few  journal  entries  which  will  be  required.  In- 
terest to  depositors  may  be  credited  through  a  journal  entry  in 
extenso. 

The  Depositors'  Ledger  is  the  next  T)ook  to  be  considered.  I  would 
recommend  the  three-column  ledger  from  the  start,  debits,  credits  and 
balance,  as  already  explained,  and  would  post  from  the  tickets,  veri- 
fying by  the  cash-book.  A  caution  may  l)e  in  place  as  to  the  size  of 
the  ledger.  For  a  small  institution,  which  will  grow  slowly.  5,000  ac- 
counts make  too  large  a  book;  2.000  or  2,500  would  be  better. 

Of  course  a  trial  balance  should  be  taken,  just  as  fcequently  and 
just  as  vigorously  as  in  a  large  bank.  I'Util  such  time  as  it  reciuires  a 
separate  book,  it  should  be  copied  into  the  Report  Book,  which  is  in- 
tended to  receive  all  statements  relating  to  the  condition  of  the  Bank. 


334 


PRACTICAL   BANKING. 


SAVINGS  DEPOSITORS'   LEDGER. 

TWO   ACCOUNTS  TO  A  PAGE. 


^SooJaJfti 

... 

-- 

- 

Kooli 

Ao.. 

.... 

FORK  JeO.   U-Er  S»OS  *  CO..  INDIANAPOUS,  INO. 

"^^ 

DATE         1         Deposit         ||      WitbiiMwii 

Balance 

DATE 

Deposit 

Witndrawn 

Balance 

- 

' 

_ 

. 

_ 

_ 

1 



_ 

_ 

- 

_ 

- 



_ 

- 

u 

L 

-1 

Book  yVo.-. 

— 

- 

T 

H 

REE  ACCOUNTS  TO 
Booh  No 

A 

PAGE. 

Booh  No^... 

— 

^ 

r).\TE 

Deposit 

CO..   INDIAN* 

Witbdr»wnJ 

DATE 

De|>o.it 

rw:::i:z 

BalBuc» 

DATE 

Deposit 

Withdrawn  1    B.luea 

~ 

" 

" 

" 



- 

" 

' 

[~ 

■ 

' 

" 

'" 

._L 

^i 



ri_ . 

tt-^- 

-_ 





--J— 



+r 

1- 

— 



-l-.-r 

The  Ledger  proper,  or  General  Ledger  (as  distinguished  from  the 
Depositors'  Ledger  which  is  subordinate  to  it),  will  probably  eon- 
tain  the  following  accounts: 

Cash;  this  may  be  dispensed  with  and  the  cash  book  considered 
as  taking  its  place. 

Depositors;  showing  the  aggregate  transactions  with  them. 

Mortgage   No. — 
Mortgage  No. — 

Bonds. 

Bonds. 

Loan  to 


An  account  for  each 
separate   investment. 


Interest;  sliowing  income  or  earnings. 

Expense. 

Interest-Dividends;  which  should  be  kept  separate  from  earnings. 

Surplus. 

GENERAL  LEDGER  FOR  A  SAVINGS  BANK. 


ANOTHER  FORM  OF  GENERAL  LEDGER. 


FORM    463. 



- 

- 

- 

- 

- 

- 

— 

— 



- 

- 

- 



— 

- 

~ 



— 

DiT« 

ITEMS 



r^-.>^.-^ 

Crkdit 

DE.Biiasci 

Cr. Balance 

~ 

_ 

THE  SMAI.L  SAVINGS  BANK. 


835 


This  ledger  iiiaj  be  iu  the  usual  mercantile  form,  but  I  would 
recommend  tliat  the  left-hand  page  only  be  used  for  the  account,  the 
right-hand,  with  horizontal  rulings  only,  being  reserved  for  descrip- 
tion. Thus,  for  example,  opposite  the  account  representing  a  mort- 
gage maj'  be  a  diagram  of  the  property,  the  names  of  bondsmen  and 
owners,  details  of  insurance,  taxes,  valuation,  and  all  information 
which  may  be  of  use. 

The  Minute  Book  and  Signature  Book  will  not  differ  from  those 
used  in  larger  banks. 


fLHFT  Page. 

FORM  3S7 


SIGNATURE  BOOK  FOR  SAVINGS  BANKS. 


75 


76 


77 


AME  WRITTEN   EV  TELLEK 


RESIDENCE 


[Right  Page. 


OCCUPATION 


VHERE  BORN 


The  Report  Book  should  contain  all  financial  statements.  If  the 
Treasurer  or  Secretary  makes  a  monthly  report  to  the  Board,  it 
should  be  copied  here.  All  Trial  Balances  of  the  General  and  Depos- 
itors' Ledgers,  all  Balance  Sheets,  a  summary  of  all  reports  and 
statements  made  to  the  public  authorities,  should  find  place  in  the 
Report  Book. 

Commencing  with  the  few  and  simple  books  here  described,  the 
need  of  more  elaborate  methods  will  be  felt  when  the  transactions  be- 
come more  numerous  and  the  keeping  record  of  them  more  complex. 
The  first  point  of  departure  will  ba  to  separate  the  receipts  and 
payments  to  Depositors,  from  the  other  transactions  and  enter  in  the 
General  Cash  Book  only  daily  totals.  Then  as  the  investments  be- 
come more  extended  other  subsidiary  ledgers  will  be  required,  such  as 
Mortgage  Ledger,  Security  Ledger,  upon  the  introduction  of  which 
the  accounts  in  the  General  Ledger  will  become  group-accounts,  all 
mortgages  being  treated,  for  example,  as  a  unit  and  the  details  of 
any  particular  mortgage  being  found  in  the  Mortgage  Ledger. 

■\V('  have  given  ample  details  of  tlie  forms  required  l>y  larger  in- 
stitutions and  these  will  gradually  be  required  as  the  little  savings 
bank  grows  up  to  them. 


386 


PRACTICAL  BANKING. 


CHAPTER    XV. 


ON    MAKING    AND    WITHDRAWING    DEPOSITS    IN    A    LARGE 
SAVINGS  BANK. 


The  Philadelphia  Savings  Funtl  Society  has  more  than  171,000  de- 
positors and  $41,000,000  of  deposits.  It  is  believed  that  a  description  of 
the  mode  of  making  deposits  in  this  institution,  and  of  withdrawing 
them  will  possess  both  interest  and  value.  One  of  the  points  to  be 
noticed  in   the  following  description  is  the  verification  of  the  work. 


Tte  PUltdelpUi  iaiai  Fuid  Socletj. 
O  O 


M),aoi 


Uigtr  Mo.. 


829.999 


Tbe  PUladetpMa  Saiinj  Fold  Society. 
O  O 


ledger  Fotlt- 


riXK  fciLIP  "A."  WUITE  SI.U'  'B,- 

This  great  care  is  taken  to  guard  against  errors.  It  also  serves 
another  most  important  purpose  of  rendering  wrongdoing  more  diffi- 
cult.     Commanding    its    own    time    in    making    and    withholding    dq- 


MAKING   AND   WITHDRAWING   DEPOSITS. 


337 


posits,   it  is  practicable  to  devise  aud   apply  all   the  checks   here  de- 
scribed to  insure  aud  preserve  the  utmost  accuracy  in  its  work. 


NEW  ACCOUNT. 

The  deposit  is 
made  to  the  re- 
ceiving teller  who 
notes  the  amount 
received  on  a  pink 
numbered  slip  (A), 
and  attached  is  a 
c  or  re  spending 
numbered  coupon 
which  is  handed  to 
the  depositor,  who 
is  directed  to  the 
Eegister  Desk 
where  the  coupon 
is  presented  and 
filed.  Opposite  a 
like  number  in  the 
Register,  the  de- 
positor is  request- 
ed to  sign  his  or 
her  name  (and  if 
unable  to  write,  a 
mark  is  made  to 
represent  the  de- 
positor's s  i  g  n  a  - 
ture)  when  the 
Register  Clerk 
takes  the  address, 
occupation  or  busi- 
ness, and  nativity. 

From  the  num- 
ber and  name  of 
the  depositor  in 
the  Register,  a 
pass  book  is  issued 
and  the  pink  slip 
(A)  is  completed 
by  writing  thereon 
the  nam  e.  The 
amount  paid  is 
copied  from  the 
pink  slip  (A)  into 
the  pass  book  and 


DEPOSITS. 

o                       o 

190                 LEDGER     578000 

1 

/e 

Jo 

/ 

r-0 

is- 

'i^s 

> 

r      ■ 

582000 

■ 
0  ( 

7-0 

« 

'  Q 

/  6 

Xl 

?-o 

/' 

S'L 

\/ 

586000 

>J 

> 

u 

Id 

V. 

''  p,- 

/ 

^\ 

590000 

J 

— 

/ 

'0 

I/) 

SLIP  -C- 


338  PRACTICAL  BANKING. 

from  this  into  the  receiving  teller's  Cash  Book,  in  which  is  also  recorded 
the  number  and  initials  of  the  depositor. 

In  the  meantime  the  depositor  has  been  directed  from  the  register 
to  the  desk  where  books  are  given  out  after  depositing.  The  clerk 
calls  the  name  and  asks  the  amount  deposited,  when  the  depositor  re- 
sponds, naming  the  amount  paid,  obtains  his  pass  book,  which  com-, 
pletes  the  transaction,  and  leaves  the  office. 

All  pink  (A)  and  white  (B)  slips  for  the  day  are  cheeked  back  to 
the  receiving  teller's  Cash  Book. 

CREDIT   POSTING. 

The  pink  (A)  and  white  (B)  deposit  slips,  the  former  representing 
a  new  account,  the  latter  an  active  account,  are  arranged  in  numer- 
ical order  and  divided  among  the  bookkeepers,  who  post  to  the  individual 
Deposit  Ledgers,  note  the  ledger  folio  on  the  slips  (A  or  B)  and  copy 
the  amount  posted  to  slip  "C,"  which  represents  a  repetition,  divided 
in  numerical  order  of  the  Individual  Deposit  Ledgers  and  the  total 
amount  for  each  ledger  transferred  to  Its  respective  individual  ac- 
count  in  the  Intermediate  Ledger. 

VERIFICATION   OF  THE   CREDIT   POSTINGS. 

The  pink  (A)  and  white  (B)  deposit  slips,  continued  in  numerical 
order,  are  taken  by  the  verifying  clerks,  who  enter  the  number  of  the 
account  and  the  name  of  depositor  in  a  book  called  '"Deposits."  After 
the  entries  for  the  day  are  completed,  verification  of  the  postings  is 
made  by  calling  off  separately  the  number  of  each  account  entered, 
which  account  is  referred  to  in  the  Individual  Deposit  Ledger,  and  if 
both  names  correspond,  the  amount  posted  by  the  bookkeeper  is 
called  out  and  placed  in  the  book  "Deposits,"  and  when  completed 
for  the  day,  are  checked  back  by  the  slips  "A"  and  "B." 

The  book  "Deposits"  is  ruled  and  an  extension  made  in  an  outer 
column  of  the  total  amount  posted  to  each  Individual  Deposit  Ledger 
and  compared  with  the  Intermediate  Ledger  postings,  which  have 
been  taken  from  slips  "C." 

At  the  end  of  each  day  the  total  amount  received  from  depos- 
itors is  entered  in  the  General  Cash  Book,  and  at  the  end  of  the 
month  the  total  amount  receired  during  the  month  is  posted  to  the 
General  Ledger. 

CARD   INDEX. 

The  Card  Index,  which  is  arranged  in  alphabetical  order,  contains 
on  a  separ.ite  card  the  name  and  number  of  each  depositor;  also  the 
date  of  the  first  deposit. 


MAKING   AND   WITHDRAW INU   DEPOSITS. 

INDEX  CARD 


839 


namb                 Benjamin  Franklin, 

NUMBER 

12346 

ADDRESS                           3220  Arch   Street, 

FIRST  DBPosiT  DATK             Jonuary  10,   igoo. 

AMOUNT, 
$26.00 

CLOSED  ACCOUNT. 

When  a  notice  is  given  for  the  payment  of  the  full  amount  on  de- 
posit, the  pass  book  is  left  at  the  office  for  settlement.  For  this  ac- 
count the  Individual  Deposit  Ledger  is  referred  to;  the  pass  boolv  is 
balanced  and  a  receipt  is  made  out  for  the  full  amount  on  deposit. 

At  the  expiration  of  the  two  weeks'  notice,  an  application  is  made 
by  the  depositor  for  payment,  when  his  signature  is  taken  on  the  re- 
ceipt and  compared  with  the  one  on  the  register  (and  if  unable  to 
write,  the  depositor  is  ideutitied  by  means  of  original  address,  occu- 
pation, business  and  nativity  given),  which  was  written  by  the  de- 
positor when  the  first  deposit  was  made,  and  if  identical,  the  amount 
is  charged  in  the  pass  book,  the  stub-  of  the  receipt  is  detached,  and 
the  depositor  is  directed  to  the  paying  teller,  from  whom  payment  is 
obtained  on  the  surrender  of  the  pass  book  and  receipt. 

The  amount  paid  a  depositor,  also  the  name  and  number,  is  copied 
from  the  receipt  to  the  paying  teller's  Cash  Book,  and  all  receipts 
for  the  day  checked  back  to  the  Cash  Book. 


^«4. 


ofc 


-tgo 

i^mtvM  fKM  Jlpe  pipiladelplpia  Sauip^  pupd  So(;l^ty, 

. SQ,^<s 


ah.. 


PAYABLE  ONLT  TO-OAT  AT  OESI  ll«.  3. 


IlECEIl'T   ■  D." 


DEBIT  POSTING. 

The  receipts  (D)  are  arranged  in  numerical  order  and  divided 
among  the  bookkeepers  who  post  to  the  Individual  Deposit  Linlgcrs 
from  the  face  of  the  receipt,  noting  thereon  the  ledger  folio;  if  full 
payment  is  made,  the  accrued  interest,  if  any  is  due  the  depositor,  is 


340  PRACTICAL  BANKING. 

credited  and  the  account  ruled  closed.  The  amount  posted  is  also 
copied  to  slip  "E,"  which  represents  a  repetition,  divided  in  order  of 
tlie  Individual  Deposit  Ledgers,  and  the  total  amount  for  each  ledger 
transferred  to  its  respective  individual  account  in  the  Intermediate 
Ledger. 

VERIFICATION  OF  THE  DEBIT  POSTINGS. 

The  receipts  are  continued  in  numerical  order  and  taken  by  the 

verifying  clerks  who  enter  the  number  of  the  account  and  the  name 

of  the  depositor  in  a  book  called  "Payments."     After  the  entries  for 

the  day  are  completed,  verification  of  the  postings 

"I'*  is  made  by  calling  off  separately  the  number  of  each 

,     account,  which  is  referred  to  in  the  Individual  De- 

Noticf  Payment 

posit    Ledger,    and   if    the  names    correspond,   the 
amount  posted  by  the  bookkeeper  is  called  out  and 

"*■ — placed  in  the  book  "Paynaents,"   and   when  com- 

fi„,^ pleted   for  the  day,  is  checked  back  by  the  stubs 

arranged  in  numerical  order  detached  from  the  re- 
ceipts (D). 
'*•""•"•■■' If    the  depositor  should    forget  to  obtain    the 

BACK  "D." 

money,  there  is  left  a  stub  without  a  receipt. 

The  book  "Payments"  is  ruled  and  an  extension  is  made  in  an 
outer  column  of  the  total  amount  posted  to  each  Individual  Deposit 
Ledger,  and  is  compared  with  the  Intermediate  Ledger  postings  which 
have  been  taken  from  slips  "E." 

At  the  end  of  each  day  the  total  amount  paid  to  depositors  is  en- 
tered in  the  General  Cash  Book,  and  at  the  end  of  the  month  the 
total  amount  paid  during  the  month  is  posted  to  the  General  Ledger. 

CARD    INDEX. 

Referring  to  the  Card  Index  which  contains  active  accounts,  the 
card  bearing  both  the  name  and  number  of  the  depositor  is  elimi- 
nated and  placed  in  alphabetical  order  in  the  Card  Index  af  Closed 
Accounts,  with  the  date  of  closing  stamped  thereon. 

DEPOSIT    TO    ACTIVE    ACCOUNT. 

A  deposit  to  an  active  account  is  made  to  the  receiving  teller,  who 
notes  the  amount  received  on  a  white  slip  (B). 

The  amount  deposited  is  entered  in  tlie  depositor's  pass  book,  and 
!i  corresponding  amount  is  placed  in  the  receiving  teller's  Cash  Book, 
which  also  contains  number  of  the  account  and  initials  of  the  de- 
positor. In  the  meantime  the  dei)Ositor  h;is  b'tii  directed  to  tlie  desk 
AVhere  books    are    given    out    after    depositing.     The    clerk    records 


MAKING  AND   WITHDRAWING  DEPOSITS. 


341 


tlio  uumber  and  nanio  of  the  depositor  on  slip  "B"  when  he  calls  the 
uame.  asl^s  thi'  aiuouut  deposited  and  the  depositor  responds  naming 
the   amount    paid    in. 


PAYMENTS. 

O                                   O 

LEDGER  JMOOft.., 

/J 

— 

Xm-tj 

^, 

^n 

- 

598000 

J 

— 

/  0~L 

I 

3i 

- 

A 

Z2.4 

X, 

602000 

' 

/<! 

— 

1 

3<, 

li< 

Uo-o 

UoS- 

Uti 

— 

6  o£ 

- 

606000 

/J 

— 

JU 

— 

J~d-o 





rifo 

SUP  "E. 


343  PRACTICAL  BANKING. 

All  pink  (A)  and  white  (B)  deposit  slips  for  the  day  are  checked 
back  to  the  receiving  teller's  Cash   Book. 

PARTIAL    PAYMENTS. 

In  giving  notice  for  a  partial  payment,  the  pass  book  is  either 
presented  at  the  office  and  the  amount  wanted  stated,  or  notice  is  sent 
by  mail,  giving  the  number  of  the  pass  book,  the  name  of  the  depos- 
itor and  the  amount  to  be  withdrawn. 

A  receipt  is  prepared  showing  the  amount  the  depositor  wishes 
to   withdraw. 

For  the  account  the  Individual  Deposit  Ledger  is  referred  to  and 
examined  in  order  to  ascertain  the  amount  standing  to  the  credit  of 
the  depositor. 

At  the  expiration  of  the  two  weeks'  notice,  application  is  made  by 
the  depositor  for  payment,  when  his  signature  is  taken  on  the  re- 
ceipt and  compared  with  the  one  on  the  register  (and  if  unable  to 
write,  the  depositor  is  identified  by  means  of  original  address,  occu- 
pation, business  and  nativity  given),  which  was  written  by  the  depos- 
itor when  the  first  deposit  was  made,  and  if  identical,  the  amount  is 
charged  in  the  pass  book  and  the  depositor  is  directed  to  the  paying 
teller  from  whom  payment  is  obtained  on  the  production  of  the  pass 
book  and  surrender  of  the  receipt. 

The  amount  paid  the  depositor,  also  the  name  and  number,  is 
copied  from  the  receipt  to  the  paying  teller's  Cash  Book  and  all  re- 
ceipts for  the  day  are  cnecked  back  to  the  Cash  Book. 


PAET  III. 

CLEAEING  HOUSES. 


(843) 


ORIGIN  AND   UTILITY   OF   THE   CLEARINQ-HOUSK.  345 


CHAPTER    1. 

ORIGIN  AND  UTILITY  OF  THE  CLEARING-HOUSE. 

Closely  connected  with  the  general  subject  of  banking  is  that  of 
the  clearing-house.  This  is  a  comparatively  modern  institution,  the 
Edinburgh  bankers  claiming  the  credit  of  establishing  the  first  one. 
The  earliest  of  whose  transactions  we  have  any  record,  however,  is 
that  of  London,  founded  in  1775,  or  earlier,  and  of  this  little  was 
known  to  the  public  until  it  began  to  publish  regular  statements  of 
its  transactions.  May  1st,  1867.  The  literature  on  the  subject  is  almost 
wholly  the  creation  of  the  last  forty  years.  Works  on  banking  and 
political  economy,  of  an  earlier  date  than  this,  rarely,  if  ever,  notice 
the  subject  at  all.  For  more  than  three-quarters  of  a  century  after 
its  establishment  the  London  clearing-house  and  that  of  Edinburgh  re- 
mained the  only  organizations  of  the  kind  known  to  exist.  The  mone- 
tary systems  of  most  European  States,  centering  around  a  single  great 
bank,  located  at  the  capital  of  each,  found  in  this  a  means  of  effecting 
mercantile  settlements.  Furthermore,  the  use  of  bank  checks  in  mak- 
ing payments,  which  chiefly  creates  the  need  of  the  bankers'  clearing- 
house, has  in  recent  years  attained  a  development  previously  un- 
known. The  growth  of  American  banking,  decentralized  and  dis- 
tributed among  many  imnks.  and  the  increasing  use  of  bank  checks 
as  a  means  of  payment,  gave  birth  to  the  next  clearing-house  in  the 
order  of  time  after  that  of  London.  The  New  York  clearing-house  was 
established  in  1853,  from  which  date  the  growth  of  the  clearing- 
house system  in  the  United  States  has  been  stupendous.  Boston  fol- 
lowed in  185G;  Philadelphia,  Baltimore  and  Cleveland  in  1858;  Worces- 
ter in  1861;  Chicago  in  1865,  all  the  others  are  of  later  date.  At 
present  there  are  seventy-eight  clearing-houses  in  the  United  States, 
and  the  aggregate  clearings  for  the  year  ending  with  September,  1897, 
were  $54,030,253,695.  The  economy  of  the  system  may  be  seen  from 
looking  at  a  few  figures.  On  July  1,  1896,  the  total  clearings  from 
sixty-six  of  the  seventy-eight  clearing-house  associations  in  the  United 
States  were  $227,935,464.  The  balances  of  these  clearings  were 
$19,152,834,  or  less  than  12  per  cent,  of  the  aggregate  amount.  This 
balance  was  thus  composed: 


346  PRACTICAL  BANKING. 

Gold   $1,325,015 

Gold  clearing-house  certificates 265,000 

S'lver  and  silver  certificates 175,950 

United  States  notes  3,451,701 

Currency   1,017.101 

Currency  certificates    5,785,000 

National  bank  notes   31,746 

Exchanges  3,088,299 

Managers'  certificates    3,904,904 

Collections  by  creditor  from  debtor  banli 85,930 

Not  stated    22,128 

Total    $19,152,834 

Deducting  the  last  four  items,  the  amount  of  gold  and  silver,  and 
various  substitutes  for  money,  used  to  malie  settlements,  was 
$12,051,573,  or  a  little  more  than  5  per  cent. 

These  facts,  which  are  derived  from  the  report  of  the  Controller 
of  the  Currency  for  1890,  show  what  a  very  small  amount  of  money 
is  needed  to  effect  settlements  through  the  clearing-house.  The  fol- 
lowing table,  taken  from  the  same  source,  shows  these  details  in 
another  form.  "In  some  cases,"  as  remarked  in  the  report,  "balances 
due  by  del)tor  l)anks  are  paid  in  gold  coin,  silver  coin,  or  paper  cur- 
rency to  the  manager  of  the  clearing-house,  who  disburses  this  money 
to  the  creditor  bank.  The  extent  to  which  this  practice  prevailed  is  shown 
in  columns  headed  'gold,'  'silver,'  and  'paper  currency,'  respectively. 
Again,  the  debtor  banks  settle  their  balances  by  paying  part  in  money 
and  part  in  drafts  on  their  correspondent  banks  to  the  clearing-house 
manager,  who  remits  the  currency  and  drafts  to  a  correspondent  bank 
and  gives  his  drafts  on  such  bank  to  the  creditor  banks  for  amounts 
due  to  them. 

"In  other  cases,  no  money  or  drafts  are  handled  by  the  clearing 
houses,  but  it  is  the  custom  for  the  clearing-house  manager  to  certify 
the  amount  due  to  or  due  from  each  bank  and  the  manner  in  which 
this  certificate  or  order  of  the  manager  is  settled  by  the  debtor  bank 
is  not  uniform.  In  a  few  instances  the  manager's  certificate  or  order 
is  not  presented  to  the  debtor  bank  for  payment,  but  is  held  by  the 
creditor  bank  until  needed  to  settle  an  adverse  balance.  As  a  general 
thing,  however,  the  order  is  presented  to  the  debtor  bank  for  payment 
either  in  currency  or  by  drafts  drawn  by  the  debtor  bank  upon  a  corre- 
spondent bank  in  New  York,  Chicago,  St.  Louis,  or  some  other  city,  as 
may  be  agreed  between  the  creditor  and  debtor  banks.  The  extent  to 
which  settlements  are  made  by  manager's  certificates  or  orders  is 
shown  in  columns  headed  'Collections  from  debtor  banks,'  'Exchanges,' 
'Manager's  checks  or  orders.'  To  a  large  extent  and  in  some  of  the 
largest  cities  balances  are  habitually  settled  by  exchange  on  corre- 
spondent banks  in  neighboring  or  distant  cities,  and  no  money  passes 
between  tlie  debtor  and  creditor  banks  in  such  cases." 


Origin  and  utilitv  of  the  clearing-house. 


347 


Clearings  and  Balances  of  the  Clearing-House  Associations  on 

July  1,  1896. 


Clearings. 

Balances. 

Location  of 
Association. 

Gold.* 

Silvcr.t 

„                Collections 
Paper         fromdebfr 
currency.         banks. 

Maine 

f.105,892 

19,400,160 

853,042 

888,052 

$16 

$789,125 

$23,653 

Total 

21,447.146 

16 

789,125 

23,653 

New  York 

139,849,413 

15,832,025 

3,802,490 

425,561 

$145,000 
12(1,  10 
748,467 

154,667 

6,%5,843 
1.968,060 

1,500 

Pennsylvania 

Maryland         

District  of  Columbia.  . 

Total 

159,909,489 

1,013,467 

154,667 

8,935,403 

Virginia 

Georgia 

Florida   

132,915 

578,698 

35,136 

48,242 

1,479,529 

1,210,585 

1,343,714 

325,728 

10,713 
2.688 

42,471 

Alabama      . .         

Texas .... 

Kentucky  

Total 

5,154,547 

13.401 

42,471 

Ohio. 

5,341,796 

23,329.6b2 

80,061 

984,440 

2,295,181 

136,523 

67,418 

5,259,577 

5,o66' 

11,380 

131,000 

5,524 
2,442 

44,780 
398,220 

19.806 

Michigan  

4,324 
8,951 

13,  TO 
79,255 

7.797 

Iowa 

Kansas     

Total 

37,494,658 

147,380 

21,241 

543,427 

19,806 

Oregon 

193,423 
319,734 
192,437 
71,449 
297,125 
2,855.456 

69,345 

Colorado            

Utah 

40,000 
35,127 
284,696 

4,252 

Washington 

10 
16 

California 

Total 

3,929,624 

429,168 

26 

4,252 

The  United  States 

227,935,464 

1,590.015 

175,950 

10,285.608 

85,930 

♦Includes  United  States  and  Clearing-House  gold  certificates, 
t  Includes  silver  certificates. 


348 


PRACTICAL   BANKING. 


Clearings  and  Balances  of  the  Clearing-House  Associations  on 
July  1,  1896.— Continued. 


Location  of 
Associations. 


Exchanges 


Main 

Massachusetts  . 
Rhode  Island  . 
Connecticut..., 


Total 


New  York 

Pennsylvania 

Maryland..  

District  of  Columbia. 


Total . 


Virginia. . . 
Georgia  .  .. 
Florida. . . . 
Alabama  .. 
Louisiana  . 

Texas 

Kentucky . 
Tennessee. 


Total , 


Ohio 

Illinois.  . . . 
Michigan.. 
Wisconsin. 
Minnesota. 

Iowa 

Kansas. . . . 
Nebraska.. 


Total... 


Oregon 

Colorado 

Utah 

Montana  . .. . 
Washington. 
California  . .. 


Total 

The  United  State* 


Balances. 


$234,408 
209,424 
251,331 


695,163 


179,109 
24,000 


203,109 


17,584 


17.584 


7,683 

1,815,543 

13,375 

113,016 

222,826 


2,172,443 


3,088,299 


Managers' 

checks  or 

orders. 


$1,%5,994 


1,965,994 


55,460 


55,460 


83.241 
8,712 
5,570 
135,171 
*43,875 
218,356 
173,685 


668,610 


385,987 


44,120 
716,664 


1,146,771 


21,358 
33,467 


35,372 


90,197 


3,927,032 


Total 
balances. 


$23,653 

2,989,543 

209,424 

251,331 


3,473,951 


7,289,952 

2,167,520 

748,467 

156,167 


10,362,106 


28,297 
128,400 
8,712 
5,. =.70 
135,171 
43,875 
218,3S6 
173,685 


742.066 


443.974 

2,241,011 

13,375 

142,095 

442,0J2 

44,120 

7,797 

716,664 


4,051,068 


69,345 
21,358 
33,467 

44,252 

70,50^ 

284,712 


523,643 


19,152,834 


Percent- 
age of 
balance 
to  clear- 
ing. 


7.7 
15.4 
24  5 
283 


16.2 


5.2 
13.6 
19.6 
36.9 


6.5 


12.2 
22.1 

24  7 
11.5 
9.1 


16  2 
53  3 


14.4 


83 
9.6 
16.7 
14.4 
19.2 
32.3 
115 
13.6 


10.8 


35.6 
6.6 
17.3 
617 
23.6 
10  0 


13.3 
84 


Percent- 
aue  of 
balances 
settled 
bjr  credit 
instru- 
ments. 


100.0 
73.6 
100.0 
100.0 


77.3 


24 
3.6 


36.5 


Percent- 
age of 
balances 
settled  in 
money. 


2.5 

97.5 

62.1 
64.8 
100.0 

37.9 

35.2 

100.0 
100.0 

ICO.O 
100.0 

100.0 

981 

1.9 

88.6 
810 

100.0 
79.3 
50  4 

100.0 

11.4 
19  0 

' '  20.7 
49  6 

100  0 

100.0 

824 

17.6 

100  0 

100.0 

100.0 

50.1 

100.0 
49.9 
100.0 

17.2 

82.8 

♦Includes  $22,128,  character  not  reported; 


ORIGIN   AND   UTILITY   OF  THE  CLEARING-HOUSE.  349 

The  cleariug-house  is,  therefore,  one  of  the  most  useful  agencies 
called  into  being  by  the  wants  of  modern  commerce.  It  is  among 
the  most  interesting  features  of  our  financial  mechanism  and  well 
worthy  of  careful  study.  Susceptible  of  almost  indefinite  expansion, 
the  clearing  system  in  its  various  forms  holds  in  possibility  the  so- 
lution of  problems  which  have  long  engaged  the  attention  of  thinkers. 

A  glance  at  some  of  the  more  common  banking  operations  will 
suflSce  to  show  the  need  of  a  clearing-house  wherever  any  consider- 
able number  of  banks  are  located  in  the  same  vicinity.  Mercantile 
establishments  are  constantly  receiving  in  the  course  of  business  not 
only  specie,  but  usually,  to  a  much  larger  extent,  bank  notes,  checks, 
drafts,  or  other  mercantile  paper.  To  present  this  paper  at  the  counters 
of  the  vai'ious  banks  at  which  it  is  payable  would  take  a  great  deal  of 
time.  The  dealer,  therefore,  deposits  it  in  the  bank  with  which  he 
keeps  his  account,  where,  either  at  once,  or  at  latest  when  collected,  the 
amount  is  placed  to  his  credit  and  goes  to  swell  his  balance. 
This  is  the  usual  way  in  which  a  bank  receives  the  paper  payable  at 
other  banks.  It  may  also  be  taken  in  payment  of  notes  payable  at  the 
bank  receiving  it.  Although  bank  notes,  as  well  as  the  various  kinds 
of  mercantile  paper,  are  so  received,  yet  the  great  bulk  of  all  such  re- 
ceipts, especially  in  the  large  cities,  consists  of  checks.  When  the  paper 
in  question  is  payable  at  the  bank  receiving  it,  the  transaction  is  closed 
by  the  simple  delivery  in  the  case  of  bank  notes,  and  in  the  case  of 
checks  by  charging  them  to  the  drawer,  the  result  being,  in  the  latter 
case,  a  simple  transfer  on  the  books  of  the  bank  from  the  account  of 
the  drawer  to  that  of  the  drawee.  Where  most  of  the  transactions  of  a 
community  center  in  a  single  institution,  as  formerly  in  the  case  of  the 
Bank  of  England,  and  at  present  in  the  case  of  the  Bank  of  France, 
the  larger  part  of  the  check  transactions  may  be  settled  in  this  way. 
To  make  provision  for  this  class  of  business,  the  Rank  of  France  fur- 
nishes special  books  of  red  colored  checks— so-called,  "bons  de  virement 
rouge"— the  object  of  which  is  to  enable  payments  to  be  made  by 
their  means  to  other  persons  also  having  an  account  at  the  bank 
without  its  being  possible  for  any  one  unlawfully  to  obtain  value  for 
them,  since  they  only  operate  as  ordei'S  to  the  bank  to  transfer  sncli 
an  amount  from  the  drawer's  account  to  some  other  account  on  the 
books  of  the  bank,  and  never  as  vouchers  for  the  withdrawal  of  funds 
from  the  establishment.  The  Bank  of  England  furnishes  no  account  of 
its  clearing  transactions,  but  they  must  be  a  much  smaller  proportion 
of  the  total  than  those  of  the  Bank  of  France,  banking  being  less 
centralized  in  London  than  in  Paris. 

In  this  country  no  one  bank  concentrates  in  itself  the  larger  pof^ 
tion  of  the  business.  Free  banking  and  competition  keep  the  banks 
more  nearly  on  an  equality.  The  larger  part  of  the  checks  received 
by  any  bank,  in  the  course  of  business,  are  likely  to  be  drawn  on  some 
Qther  bank,  of  which  they  must  be  collected  by  the  receiving  bank.    As 


350  PRACTICAL   BANKING. 

business  increases  iu  any  locality,  each  bank  is  lilcely  to  have  a  larger 
number  and  amount  of  demands  upon  most  of  tlie  other  banks  in  the 
place,  and  they  eventually  become  too  large  and  numerous  to  be  con- 
veniently settled  between  the  individual  banks.  Before  the  establish- 
ment of  a  clearing-house  in  this  country  this  method  was  pursued  in 
New  York  long  after  the  inconvenience  became  so  great  that  it  would 
now  be  considered  quite  intolerable.  Mr.  J.  S.  Gibbons,  in  his  very 
interesting  and  instructive  book.  "The  Banks  of  New  York  and  the 
Panic  of  1857,"  gives  the  following  graphic  description  of  the  difficulties 
attending  this  mode  of  settlement: 

"During  the  few  years  following  1849  the  number  of  banks  in 
New  York  was  increased  from  twenty-four  to  sixty.  To  make  the 
daily  exchange,  one-half  of  them  must  necessarily  send  to  the  other 
half.  But  this  plain  division  of  the  service  was  not  convenient  or 
economical.  It  was  found  better  for  all  of  them  to  do  a  part  of  the 
distribution,  and  thus  the  whole  sixty  porters  were  in  motion  at  the 
same  time.  Each  carried  a  book  of  entry,  and  the  money  for  every 
bank  on  which  he  called.  The  paying  teller  of  the  receiving  bank 
took  the  exchange  and  entered  it  on  the  credit  side  of  the  book:  theu 
he  entered  on  the  debit  side  the  return  exchange  and  gave  it  with 
the  book  to  the  porter,  who  hastened  to  the  next  bank  in  his  circuit. 
The  porters  crossed  and  recrossed  each  other's  footsteps  constantly; 
they  often  met  in  companies  of  five  or  six  at  the  same  counter,  and 
retarded  each  other,  and  they  were  fortunate  to  reach  their  respective 
banks  at  the  end  of  one  or  two  hours.  This  threw  the  counting  of  the 
exchange  into  the  middle  and  after  part  of  the  day,  when  the  other 
business  of  the  bank  was  becoming  urgent. 

"Instead  of  attempting  a  daily  adjustment  of  accounts,  which 
would  have  consumed  several  hours  and  caused  much  annoyance.  It  be- 
came a  tacit  agreement  that  a  weekly  settlement  of  balances  should  be 
made  after  the  exchange  of  Friday  morning,  and  that  intermediate 
draft  drawing  should  be  suspended.  The  weaker  and  more  specu- 
lative banks  took  advantage  of  this  by  borrowing  money  on  Thursday, 
which  restored  their  accounts  for  Friday,  and  its  return  on  Saturday 
threw  them  again  into  the  debit  column.  In  this  way  the  banks 
distant  from  Wall  street  managed  to  carry  an  inflated  line  of  dis- 
counts, based  on  debts  due  to  other  institutions.  It  became  an  affair 
of  cunning  management  by  some  to  run  a  small  credit  of  two  or  three 
thousand  dollars  each  with  thirty  or  more  banks,  making  a  total  of  one 
himder  thousand  dollars,  on  which  they  discounted  bills.  Consequently, 
the  Friday  settlements  proved  to  be  no  settlements  at  all,  but  a 
prodigious  annoyance.  As  soon  as  the  paying  teller  or  his  assistant 
completed  the  exchange  balance  list  the  cashier  of  each  bank  would 
draw  checks  for  every  debt  due  to  him  by  other  banks,  and  send  out 
the  porters  to  collect  them.  A  draft  on  one  in  favor  of  another  might 
settle   two   accounts   at   once,   but   there   Avas   no   understanding   that 


ORIGIN   AND    UTILITY   OK  THE   CLEARING-HOUSE.  351 

uiade  it  possible  to  secure  that  small  economy;  or,  if  there  was.  it  was 
ilisregarded.  The  sixty  porters  were  out  all  at  once,  with  an  aggregate 
of  two  or  three  hundred  baulv  drafts  in  their  pockets,  balking  each 
other,  drawing  specie  at  some  places  and  depositing  it  in  otliers,  and 
the  whole  process  was  one  of  confusion,  disputes,  and  unavoidable 
blunders,  of  which  no  description  could  give  an  exact  impression. 

"After  all  the  draft-drawing  was  over  came  the  settlement  of  the 
Wall  street  porters  among  themselves.  A  Porter's  Exchange  was  held 
on  the  steps  of  one  of  the  Wall  street  banks,  at  which  they  accounted 
to  each  other  for  what  had  been  done  during  the  day.  Thomas  had 
left  a  bag  of  specie  at  John's  bank  to  settle  a  balance  which  was  due 
from  William's  bank  to  Kobert's;  but  Robert's  bank  owed  twice  as 
much  to  John's.  What  had  become  of  that?  Then  Alexander  owed 
Robert  also,  and  William  was  indebted  to  Alexander.  Peter  then  said 
that  he  had  paid  Robert  by  a  draft  from  James,  Avhich  he,  James, 
had  I'eceived  from  Alfred  on  Alexander's  account.  That,  however,  had 
settled  only  half  the  debt.  A  quarter  of  the  remainder  was  canceled 
by  a  bag  of  coin  which  Samuel  had  handed  over  to  Joseph,  and  he  had 
transferred  to  David.  It  is  entirely  safe  to  say  that  the  presidents 
and  cashiers  of  the  banks  themselves  could  not  have  untangled  this 
medley.  Each  porter  had  his  tally,  and  b^'  checking  off  and  liberating 
first  one,  whose  account  was  least  complicated,  and  then  another,  they 
finally  achieved  a  settlement. 

"This  scene  was  re-enacted  on  every  Friday.  In  consequence  of 
the  porters  being  withdrawn  from  their  regular  service  in  the  bank, 
extra  labor  was  imposed  on  others,  responsibilities  became  mingled 
together,  and  the  officers  were  kept  for  the  whole  day  in  a  state  of 
distraction  and  anxiety.  The  paying  tellers  were  subject  to  frequent 
interruption,  as  they  were  obliged  to  receive  and  deliver  all  specie. 

"Xot  the  least  irritating  feature  of  the  case  was  that  a  single  small 
draft  by  any  one  bank  on  any  other  induced  a  general  drawing,  and 
all  became  involved  in  commotion  and  'war'  upon  each  other.  If  time 
were  allowed,  the  debtor  banks  would  finally  be  obliged  to  pay  the 
liquidating  balance;  but  3  o'clock  arrested  the  process,  and  the  banks 
where  the  demand  was  then  in  force  were  obliged  to  disburse  the  coin. 
It  was  not  unusual  for  a  debtor  bank  to  add  fifty  thousand  dollars  to 
its  specie  at  the  close  of  the  day,  with  its  debt  doubled,  while  a  creditor 
bank  to  half  a  million  in  the  general  account,  would  find  itself  at  3 
o'clock  depleted  of  one  or  two  hundred  thousand  dollars  in  coin." 

This,  it  will  be  noticed,  was  when  the  bank  settlements  at  New 
York  could  not  have  reached  to  one-sixth  of  their  present  amount.  It 
may  be  safely  affirmed  that  the  vastly  larger  transactions  of  the 
present  day  could  not  be  settled  in  the  old  way.  It  was  not  until  after 
much  deliberation  and  considerable  opposition  that  a  clearing-house 
was  established  at  New  York,  but  the  success  of  the  experiment  soon 
dispelled  all  doubts  of  its  utility  and  necessity,  and  led  to  the  adoption 
of  the  system  in  other  cities. 


353 


PRACTICAL  BANKING. 


The  magnitude  of  the  transactions  of  the  clearing-houses  in  the 
United  States  is  shown  by  the  following  table: 

Statement  of  the  Exchanges  of  the  Clearing-Houses  of  the 
United  States  for  October,  1897. 


CLBARING-HOUSa. 


New  York 

Boston  .... 

Chicago 

Philadelphia 

St.  Louis 

San  Francisco 

Baltimore    

Pittsburg 
Cincinnati  .... 
Galveston  . .    . 

Kansas  City     . .    . . 

New  Orleans 

Minneapolis 

Buffalo 

Milwaukee 

Detroit 

Louisville 

Houston     

Providence 

St.  Paul         

Cleveland 

Denver     

Omaha  .. 
Indianapolis 

Memphis         

Columbus 

Dallas       

Nashville      . .     .   . 

Hartford 

Portland,  Ore     ... 

Fort  Worth 

Peoria. 

Washington,  D.  C. 
St.  Joseph. 

New  Haven 

Salt  Lake 

Rochester 

Savannah 


1S97. 


$3,336,060,361 

4'36,187,068 

451,430,188 

304,579,410 

123,005,403 

74,231,337 

70,755,657 

74,205,453 

55,491,100 

17,949,850 

50,491,337 

33,374,496 

54,221,513 

19,837,009 

25,80b,07O 

27,912,902 

28,092,887 

15,2CH.882 

27,498,600 

24,175,617 

28,673,851 

10,673,666 

25,613,452 

11,820,216 

10,206,818 

15,418,100 

6,500,000 

4,889,537 

11,055,855 

9.028,672 

3,385,395 

7,844,576 

8,833,541 

6,172,987 

7,460,341 

8,290,286 

7,013,513 

17,661,581 


CLEARING-HOUSE. 


Springfield,  Mass. 

Worcester    

Portland,  Me 

Norfolk 

Tacoma 

Lowell 

Grand  Rapids  . .  . . 

Sioux  City 

Syracuse  

Seattle 

Los  Angeles. 
Wilmington. 

Lincoln 

Des  Moines 

Chattanooga        . . . 

Wichita 

New  Bedford  

Lexington 

Topeka  

Waco 

Birmingham 

Binghamton.... 

Canton.  

Springfield,  Ohio 

Fremont.    

Kichmond 

Atlanta   

Bay  City 

Akron..  

Sioux  Falls 
Jacksonville.     .    .. 

Rockford    

Kalamazoo 

Hastings         

Toledo 

Spokane 

Fargo 

Fall  River 


Total. 


1897. 


034,443 
986,671 
S%,240 
652,523 
495,927 
393,290 
713,699 
678,008 
479,618 
876,954 
174,482 
208,959 
615.467 
183,412 
208,951 
787,513 
120,821 
395,905 
206,580 
268,760 
019.346 
4.57,300 
796,395 
645,568 
3b9,487 
,577,161 
,268,331 
965,951 
,150,800 
621,484 
789,733 
870,770 
,318,985 
462,545 
,644,.587 
,347,024 
,313,743 
,257,457 


$5,616,008,417 


ORGANIZATION   AND   MECHANICAL  ARRANGEMENTS.  3.j3 


CHAPTER    11. 


ORGANIZATION  AND  MECHANICAL  ARRANGEMENTS. 


To  establish  a  clearing-house  a  number  of  banks  associate  them- 
selves together,  under  certain  regulations  more  or  less  elaborate,  ac- 
cording to  circumstances,  for  the  purpose  of  settling  daily,  at  one  time 
and  place,  the  mutual  demands  arising  between  the  banks.  The  officers 
of  such  an  association  are  usually  a  president,  or  chairman,  a  secre- 
tary, treasurer  and  manager,  with  a  clearing-house  committee,  and 
such  others  as  the  wants  of  the  association  require.  At  New  York, 
in  addition  to  the  clearing-house  committee,  there  are  a  committee  on 
conference,  a  nominating  committee,  a  committee  on  admissions,  and 
an  arbitartion  committee.  The  manager  is  sometimes  chosen  by  the 
association,  usually  by  the  clearing-house  committee,  which  generally 
has  charge  of  all  matters  incidental  to  the  operations  of  the  association 
not  otherwise  specially  provided  for.  The  larger  clearing-houses  have 
also  an  assistant  manager.  The  salary  of  the  manager  is  fixed  pur- 
suant to  the  rules  of  the  association,  and  he  gives  bond  with  approved 
sureties  for  the  faithful  discharge  of  his  duties.  At  New  York  the 
manager  gives  bonds  for  .$10,000,  clerks  for  $5,000  each.  He  has.  under 
the  control  of  the  clearing-house  committee,  immediate  charge  of  all 
business  at  the  clearing-house,  so  far  as  relates  to  the  manner  in 
which  it  shall  be  transacted;  and  the  clerks  of  the  establishment,  if 
any,  as  well  as  the  settling  clerks  and  porters  or  messengers  of  the 
associated  banks,  while  at  the  clearing-house,  are  under  his  direction. 

At  a  fixed  hour,  each  day,  representatives  of  the  banks  meet  at  a 
specified  place,  called  a  clearing-house,  and  exchange  the  checks  or 
other  paper  which  they  hold  against  one  another.  The  paper  which 
the  banks  take  to  the  clearing-house  is  called  the  exchange,  and  the 
total  amount  of  paper  exchanged  is  called  the  clearings,  or  exchanges. 
Those  banks  which  bring  to  the  clearing-house  a  less  amount  in  checks 
or  other  paper  than  they  take  away— called  debtor  banks— pay  at  a 
later  hour  on  the  same  day  to  the  banks  which  bring  more  than  they 
take  away— called  creditor  bauk.s— a  balance,  either  directly  or  through 
the  clearing-house,  in  cash  or  its  equivalent.  The  payment  of  the 
balances  by  the  debtor  banks,  and  the  receipt  of  these  balances  by 
the  creditor  banks,  complete  each  day's  settlements.  As  the  aggregate 
amount  brought  is  always  the  same  as  the  amount  taken  away,  so  the 


354  PRACTICAL   BANKING. 

balances  due  from  the  debtor  banks  must  be  exactly  equal  to  the 
amoimt  due  to  the  creditor  banks.  The  clearing  system  is  the  applica- 
tion on  a  large  scale  of  the  principle  of  set-off.  The  saving  of  time  and 
in  the  handling  of  cash  is  an  obvious  advantage  flowing  from  the 
union  of  banks  in  a  clearing-house.  There  are  other  advantages,  not 
less  important,  which  will  appear  on  further  examination. 

The  mechanical  arrangements  used  by  tlie  various  clearing-houses 
in  effecting  their  settlements  differ  according  to  the  character  and 
magnitude  of  the  operations  carried  on.  At  some  of  the  smaller  clear- 
ing-houses there  is  no  permanent  place  for  making  the  exchanges,  the 
banks  taking  turns.  Where  the  transactions  are  of  large  amount, 
however,  it  becomes  necessary  to  have  a  room  specially  fitted  up  for  the 
purpose.  The  New  York  clearing-house  has  a  noble  building  which  is 
owned  by  the  association.  Desks,  one  for  each  banlv.  are  arranged  in 
three  parallel  rows,  each  desk  having  the  name  of  the  bank  for  which 
it  is  designed  lettered  on  a  silver  plate  in  front,  and  being  numbered 
with  the  bank's  number.  At  Boston,  the  desks  in  the  clearing-house 
are  arranged  in  an  oval  or  elliptical  form,  facing  outward,  as  they 
were  in  the  old  clearing-house  rooms  at  New  York.  The  method  of 
doing  the  business  is  substantially  the  same  in  both. 


PREPARATION  OF  THE  EXCHANOE. 


355 


CHATTER    111. 


PREPARATION   OF  THE   EXCHANGE. 


The  following;  analysis  of  clearing-house  transactions  is  specially 
applicable  to  New  Yorlc  and  Boston.  The  peculiarities  of  other  clear- 
ing-houses will  be  noticed  later  on.  Among  the  first  things  done  with 
exchangeable  paper  when  received  is  its  classitication  according  to  the 
banks  at  which  it  is  payable.  The  teller  into  whose  hands  it  comes 
usually  has  a  pigeon-hole  for  each  bank,  numbered  with  the  clearing- 
house number  of  that  bank,  in  which  the  paper  payable  thereat  is 
placed.  At  many  of  our  clearing-houses  it  is  obligatory,  and  at  all  com- 
mon, to  place  upon  this  paper  some  distinguishing  mark,  usually  the 
name  and  number  of  the  bank  clearing  it,  to  indicate  the  channel 
through  which  it  has  passed.  In  preparing  the  exchange  for  the  clear- 
ing-house, the  amounts,  merely  of  the  various  items  making  up  the  de- 
mauds  against  each  bank,  are  entered  upon  a  blank  called  an  "Ex- 
change Slip,"  as  follows: 

The  figures  here  given,  it  will  be 
understood,  are  presented  merely  by 
way  of  illustration,  and  not  as  repre- 
senting in  character  or  amount  the 
transactions  of  the  Fourth  National 
Bank.  The  first  footing  on  the  ex- 
change slip  (?195,4.'>0  in  this  case) 
represents  the  amount  of  checks  or 
other  items  deposited  to  the  close  of 
business  on  a  given  day  for  the 
clearing  of  the  next  day.  The  addi- 
tion of  the  items  received  the  next 
morning  by  mail  or  otherwise  in  time 
for  the  clearing,  makes  the  second 
footing  (in  this  case,  $208,625.50) 
being  the  total  amount  of  claims 
carried  to  the  clearing-house  by  the 
Fourth  National  Bank  against  No.  1, 
the  Bank  of  New  York. 
There  is  a  different  exchange  slip  for  each  bank,  properly  labeled, 
to  show  for  which  bank  the  exchange  is  destined.    On  this  slip  are 


M  Teller. 

No.  1. 

From  No.  61. 

FOURTH   NATIONAL   BANK. 

2 

500  00 
500,00 

1 

000  00 
150  00 
800  00 

5 

500  00 

10 

000  00 

50 

000  00 

40 

000 

CO 

85 

000 

00 

195 

450 

00: 

4 

500 
SO 
125 

00 

oo; 

50! 

60 

000 

00 

8 

500 

00 

266 

625 

5o: 

356 


PRACTICAL  BANKING. 


entered  the  amounts  merely,  of  the  different  checks  or  other  items, 
talien  to  the  clearing-house.  The  items  on  each  slip  are  footed  up, 
and  the  totals  entered,  the  first  footing  in  the  first  debit  column,  and 
the  final  footing  in  the  second  debit  column  of  another  blank  called 
the  "Settling  Clerk's  Statement,"  ruled  as  follows,  and  containing  the 
names  and  numbers  of  all  the  banks,  a  part  of  which  are  omitted  to 
save  space: 


No.  61.     FOURTH  NATIONAL  BANK. 
Settling  Clerk's  Statement,  January  16,  1899. 


No. 

Banks. 

Debit.          1          Debit. 

i 

Credit. 

1 
2 

3 
4 
5 
6 

7 

Bank  of  N.  Y.  Nat'l  Bkg.  Ass'n . . 

Manhattan  Co 

Merchants'  National  Bank 

Mechanics'  National  Bank 

Union  National  Bank 

Bank  of  America            

1195,450  00 

250,000  00 

50,000  00 

175,000  00 

125,000  00 

90,000  00 

225,rOOOO 

1,427,947  78 

$268,625  SO 
310,000  CO 
71,000  00 
200,000  00 
145,000  00 
125,000  00 
260,'  CX)  00 

2,258,772  28 

1 
2 
3 
4 
5 
6 
7 

(Other  banks  omitted.) 

2,538,397  78          .^.638.307  78 

3,297,323  04 



341,074  74 

3,638,397  78 

In  order  to  have  the  exchanges  seasonably  and  carefully  pre- 
pared, the  first  debit  column  is  made  up  and  footed  at  the  close  of 
business  each  day  for  the  next  clearing,  the  entries  consisting  of  the 
first  footings  on  the  various  exchange  slips,  as  for  instance,  .$195,4.50 
on  the  one  given.  The  heaviest  part  of  the  work  is  thus  done  the 
day  before  the  dealing,  leaving  for  the  limited  time  left  in  the 
morning  only  the  work  of  completing  the  additions  to  the  exchange 
slips,  and  inserting  the  final  totals  (if2G8,G25.oO  on  the  exchange  slip 
above)  in  the  second  debit  column,  which  shows  the  total  exchange  sent. 
The  credit  column  is  left  blank  to  be  filled  up  at  the  clearing-house 
with  the  amounts  of  the  return  exchange  representing  checks  or  other 
items  payable  by  the  Fourth  National  Bank. 

On  the  next  page  is  reproduced  an  actual  "Settling  Clerk's  State- 
ment" of  one  of  the  Boston  banks,  showing  an  exact  transcript  of  the 
bank's  trans<actions  with  the  clearing-house  on  a  certain  day.  Besides 
the  interest  attaching  to  it  as  a  record  of  actual  transactions,  it  will 
serve  to  make  the  subject  clearer  to  those  not  familiar  with  the  details 
of  clearing-house  business. 


!»KEPARAtlON  OF  THE  EXCHANGE. 


S57 


NATIONAL  BANK. 

Settling  Clerk's  Statement, 1899. 


Bonis. 


Massachusetts  National 

National  Union  .    .   ... 

Old  Boston  National . . 

State  National         .  

New  England  National 

Tremont  National 

Columbian  National 

National  Eajfle  .. 

National  City  

Washington  National 

North  National  

Atlantic  National  .    .... 

Merchants  National 

Hamilton  National 

Market  National .    

Sec  ind  National 

^  tias  National       

Shoe  and  Leather  National. . . 

Shawmut  >  ational 

National  Excliaiige 

National  Bank  of  Commerce.  . 
National  Bank  of  N.  Am   rica. 

FaiieuilHall  National        

National  Webster   

Eliot  National        

Howard  National 

Suffolk  National 

Globe  National 

Freemans  National 

Boylston  National    

Blackstone  National 

Boston  National      

National  Hide  and  Leather 

National  Bank  Redemption  ... 

First  National  

National  Revere  

National  Bank  of  Republic. . . . 

Continental  National  

Mt.  Vernon  National 

Third  National 

Everett  National 

National  Security 

Broadway  National 

National  Bank  Commonwealth 

Central  National 

Manufacturers  National. 

Fourth  National  

Metropolitan  National 

Winihrop  National 

Lincoln  National     

Mechanics  National    

Commercial  National 

Footings 

Balance 


First  Debit. 


37  25 
156  82 
96 


87  57 
Ul  44 

5 

3  75 

193  56 

9,476  54 

477  80 

654  35 

1,926  34 

41  45 

6.252  14 

1,176  90 

1,685  39 

4.656  92 

329  35 

1,167  09 

26  50 

19  52 

28,579  68 

26  23 

665  20 

250  fcS 

354  72 

3,554  77 

1,589  46 

677  67 

1,660  13 

1,129  42 

36  17 

3,926  35 

24  36 

173  74 

20,857  27 

776  37 
981  88 

3,475  ^ 
60  90 

4,824  95 
615  08 
275  34 
255  72 
252  39 
758  96 
370  43 


7  15 


Total  Debit 


44  40 
156  82 
313  01 

8 
394  24 

145  57 
111  44 

1,515  81 
1,615  74 

452  60 
10,523  12 

477  80 

654  35 
2,553  84 
51  16 
7,316  48 
l,76o  33 
9,172  82 
5,006  91 

629 
1,723  16 
74  95 

466  74 

714  89 

2,677  26 

929  27 

545  69 

3.829  16 

1,613  46 

3,742  9> 

18,728  05 

1,328% 

702  54 

4,971  83 

24  36 

173  74 

21,243  34 

939  57 
1,697  49 
5,358  69 

752  07 
4,846  95 
4,159  02 

281  34 
3.541  55 

252  39 

958  % 
1,335  53 


130,523  32 


78,538  45 


209,061  77 


Fanks  Cr.    No. 


425 
29 

782 
3,990 

45s 
1,056 
1,W7 

567 

1,545 

215 

29,- 22 

3,469 

990 

63,132 

112 

2,248 

15,089 

9,675 

9,258 

i:i 

2,236 


3,853  21 


25 
03 

47 
10 
16 

50 

9 

76  !  lO 
91  11 
12 
13 
15 


310 

3,267 

107 

46 

216 

593 

21,213 

3,476 

2,479 

1,016 

12,0.9 

95 

215 

3,122 

1,307 

354 

827 

50 

2S 

479 

4-;() 

2,329 

2,CM9 

2,822 


209,061  77 


87 
42 

60  !  16 

06  I  17 

54  18 

43  19 

36  2j 

45  2l 


22 
75  23 
80  ,  24 
25 
26 
27 
28 
29 
31 
32 
Si 
i\ 
36 
37 
39 
40 
41 
4> 
43 
44 
45 
46 
47 
4« 
49 
50 
51 
52 
S3 
54 
55 
56 


130,523  32 


78,538  45 


358  PRACTICAL  BANKING. 

A  Study  of  this  statement  will  make  apparent  one  of  the  great 
economies  effected  by  the  clearing-house  system,  namelj",  the  con- 
solidation into  one  item  of  the  accounts  with  all  the  banks.  Thus, 
in  the  statement  here  presented,  the  forty-five  debits  are  represented 
by  the  single  total  debit  of  .f2T1.232.3G,  and  the  forty-eight  credits  by 
the  total  of  $150,655.56,  while  instead  of  fifty  mutual  balances  to 
adjust,  the  single  item  of  $120,576.80  covers  the  whole. 

The  first  column  represents  the  first  footing  on  the  exchange  slip, 
being  the  amount  of  clearing  matter  received  up  to  the  close  of  bank 
hours  for  the  next  day's  clearings.  The  second  column  represents  the 
total  debit,  after  adding  the  checks  or  other  paper  received  the  next 
morning  by  mail  or  otherwise,  in  season  for  the  day's  exchanges.  The 
blank  for  the  Settling  Clerk's  statement  is  the  same  for  all  the  banks. 
The  blank  used  at  Boston  contains  another  column  between  the  two 
debit  columns,  designed  for  "Additions,"  to  show  the  exchange  re- 
ceived each  morning  in  season  for  the  day's  clearing.  As  this  column 
is  not  needed,  and  is  frequently  not  used,  it  is  omitted  in  the  form 
above  given.  The  credit  column  is  filled  up  at  the  clearing-house  with 
the  amounts  of  the  return  exchange  brought  by  the  other  banks. 
When  the  exchange  slips  are  completed  and  footed,  each  slip  is  at- 
tached to  the  outside  of  the  package  of  checks  and  vouchers  which  it 
represents,  or  the  amount  is  marked  on  the  outside  of  a  sealed  en- 
velope containing  them.  The  different  packages  are  also  arranged  in 
the  order  in  which  they  are  to  be  delivered  at  the  clearing-house, 
and  placed  in  a  satchel  or  other  enclosure  to  be  carried  thither.  The 
entries  in  the  Settling  Clerk's  Statement  are  carefully  verified  and 
footed,  showing  the  bank's  total  debit  against  the  other  banks,  and 
its  credit,  that  is  the  amount  witli  which  it  is  credited,  at  the  clearing- 
house. This  total  is  compared  with  the  paying  teller's  footings,  and  if 
both  agree,  the  correctness  of  the  statement  is  so  far  proved.  It  is 
rare  that  an  error  occurs  in  the  debit  figures.  The  total  debit  is  entered 
on  another  blank  called  a  "Credit  Ticket,"  as  follows: 


No.  61.  Nbw  York  Clbaring- House, 

January  17,  1898. 

Credit  FOURTH  NATIONAL  BANK $3,638,397.78. 

J.  Smith,  Settling  Clerk. 


The   amount   of   the   exchange   for   each   bank   is   also  entered   in 
another  blank  called  a  "Check  Ticket,"  as  follows; 


PREPARATION  OF  THE  EXCHANGE. 


859 


No.  1. 

BANK   OF    NEW   YORK, 

NATIONAL  BANKING  ASSOCIATION. 

From  No.  61, 

Fourth  National  Bank. 

«8e8,265.50. 


A  similar  ticliet  is  made  up  for  each  of  the  other  banks,  and  is 
delivered  to  its  settling  clerk  at  the  clearing-house,  by  which  to 
"check"  the  entries  in  the  credit  column  of  his  statement,  since  every 
debit  entry  on  one  statement  must,  if  the  ligures  are  correctly  tran- 
scribed, correspond  with  a  credit  entry  on  some  other  satement.  These 
check  tickets  may  be  made  up  and  delivered  by  the  settling  clerks  at 
the  clearing-house  while  the  settlement  is  in  progress. 

A  copy  of  the  debit  columns  in  the  Settling  Clerk's  statement  is 
made  on  another  partly  corresponding  blank,  with  a  space  on  the  right 
for  signatures,  instead  of  the  credit  column.  This  is  called  the  "Settling 
Clerk's  Receipt,"  and  is  taken  by  the  messenger  who  carries  also  the 
packages  of  checks  or  vouchers.  The  settling  clerk  carries  his  state 
ment  and  the  credit  ticket.  At  all  the  larger  clearing-houses  each  bank 
is  represented  by  these  two  clerks,  the  messenger  or  porter,  and  the 
settling  clerk.  At  New  York  some  of  the  banks  have  two  settling 
clerks;  the  whole  force  of  clerks  employed  by  the  sixty-four  banks 
l)eing  one  hundred  and  sixty. 


360  PRACTICAL  BANKING. 


CHAPTER    IV. 
HOW  CLEARINGS  ARE  MADE. 

At  a  few  minutes  before  10  o'clock  the  clei'ks  begin  to  arrive  at  the 
clearing-house,  and  each  settling  clerk  as  he  enters  passes  to  the  man- 
ager's desk,  his  credit  ticliet  showing  the  amount  of  exchange  with 
which  his  bank  is  to  be  credited.  These  amounts  are  entered  as  rapidly 
as  possil)le  in  the  credit  column  of  another  blank  called  the  "Clearing- 
house Proof,"  which  is  given  on  a  subsequent  page.  So  rapidly  is  this 
work  done  by  an  expert  that  within  a  very  few  minutes  after  the  last 
credit  ticket  is  received  the  entries  in  the  credit  column  are  com- 
pleted and  footed,  showing  the  total  exchange  of  the  day  if  no  error  has 
been  made.  Just  before  10  o'clock  a  stroke  of  the  manager's  bell  calls 
the  clerks  to  order.  They  take  their  places  at  their  respective  desks, 
the  settling  clerks  inside,  and  the  messengers  outside,  the  former  with 
his  statement  so  far  as  completed,  the  latter  with  the  "Settling  Clerk's 
Receipt,"  and  the  actual  vouchers  for  the  banks  to  which  they  are  to 
be  presented.  Another  stroke  of  the  bell,  at  10  o'clock  precisely,  is  the 
signal  for  the  exchanges  to  commence.  No  variation  from  this  time  is 
allowed  on  any  pretext  wliatever,  and  on  this  point  the  clearing-house 
is  no  respecter  of  persons.  A  few  years  ago  Mr.  Windom,  Secretary  of 
the  Treasury,  desired  to  witness  the  exchanges,  and  was  apprised  of 
the  inflexible  punctuality  required.  He  arrived  some  minutes  late,  only 
to  find  that  the  clearings  had  taken  place  just  as  if  he  had  been  an 
individual  in  a  private  station. 

At  the  second  stroke  of  the  bell,  each  messenger  advances  one 
step,  which  brings  him  to  the  desk  of  the  first  bank  at  Avhich  he  is  to 
deliver  vouchers.  He  hands  over  the  exchange  package  designed  for 
that  bank,  also  the  "Settling  Clerk's  Receipt,"  on  which  the  settling 
clerk  enters  his  initials  against  the  amount,  as  a  voucher  to  show  that 
the  exchange  has  been  received.  The  receipt  is  then  handed  back  to  the 
messenger,  who  passes  on  and  repeats  the  operation  at  the  desk  of 
every  other  bank  for  which  he  has  any  vouchers,  finally,  coming 
around  to  his  own  desk  after  having  delivered  all  his  packages.  Sup- 
posing him  to  have  a  package  for  every  bank  except  his  own,  each  of 
the  sixty-four  messengers  has  delivered  sixty-three  packages.  The 
number  of  accounts  thus  settled  between  the  banks  is,  therefore,  fi4x63 
— 4032.  The  time  required  for  delivering  the  exchanges  is  ten  minutes 
at  New  York,   and   five   minutes  at   Boston.    In   the   old   way  of   ex- 


HOW   CLEARINGS   ARE  MADE.  361 

changing  it  would  liavo  talcen  several  houi's.  At  Boston  there  is  no 
"Settling  Clerk's  Receipt."  and  the  messengers  deliver  at  each  desk 
tlie  check  ticket  already  mentioned,  showing  the  amount  of  each  pack- 
age delivered. 

The  messenger  having  completed  his  circuit,  takes  liack  to  his 
bank  the  return  exchange  left  at  the  desk  of  his  bank  by  the  messen- 
gers of  the  other  banks,  with  a  statement  showing  in  round  numl)ers 
the  result  of  the  clearing.  The  return  exchange,  consisting  of  the 
vouchers  payable  at  the  bank  to  which  they  are  delivered  through  the 
clearing-house,  is,  when  brought  to  the  bank,  delivered  to  the  paying 
teller  for  examination,  after  which,  if  they  are  all  right  and  the 
drawers  have  sufficient  funds,  the  checks  and  other  paper  are  de- 
livered to  the  boolvkeeper  and  charged  to  the  proper  accounts,  thus 
closing  the  transaction.  All  checlcs,  drafts,  notes,  or  other  items  in  the 
exchanges,  returned  as  "not  good,"  or  missent,  are  to  be  returned  on 
the  same  day  to  the  bank  from  which  they  were  received,  and  this  bank 
must  make  good  the  amount  received  through  the  clearing-house  for 
them;  but  when  returned  for  want  of  endorsement  or  informality,  they 
may,  after  being  certified  by  the  returning  loank,  be  passed  through  the 
exchanges  of  the  following  morning  to  the  amount  of  $5,000.  Errors 
in  the  exchanges  are  also  adjusted  between  the  banks,  the  clearing- 
house not  being  responsible. 

After  the  departure  of  the  messengers  from  the  clearing-house,  the 
settling  clerks  continue  their  work,  none  of  them  being  allowed  to 
leave  until  the  settlements  are  completed,  without  the  consent  of  the 
manager.  Each  clerk,  as  soon  as  he  has  footed  the  credit  column  of 
his  statement  and  carefully  revised  the  work,  strikes  a  balance  between 
the  total  debit  and  tlie  total  credit  exchange,  which  shows  how  much 
his  bank  is  to  receive  or  pay.  He  then  copies  tliese  footings  into  what 
is  called  the  "balance  ticket,"  as  follows: 


« 
a 
o 
pa 
u 
a 

•c 
M 

1 

iS 

No.  61.                                                New  York  Clearing-House. 

January  17,  1898. 

Debit  FOURTH  NATIONAL  BANK  amount  received $3,297,323.04 

Credit        "               "               "               "        brought 3,638,397.78 

$ Debit  balance  due  Clearing- House. 

Credit  balance  due  The  Fourth  National  Bank.          $341,074.74 

This  is  passed  to  the  manager's  desk.  The  amount  brought  has 
been  already,  as  before  stated,  entered  in  the  credit  column  of  the 
clearing-house  proof.  The  amount  received  is  now  entered  in  the  debit 
column,  and  the  l^alance  in  the  column  "Due  Banks"  against  the 
name  of  the  Fourth  National  Bank.  The  next  bank  may  have  a  balance 
against  it,  which  sliould  be  entered  in  the  left-hand  column  under  the 
heading  "Due  Clearing-house."    When  all  the  l)alance  tickets  have  been 


362  PRACTICAL  BANKING. 

delivered  at  tlie  manager's  desk,  and  the  entries  from  them  made  in 
the  proof,  the  debit  and  balance  columns  are  footed,  the  credit  column 
having  been  already  added.  As  the  total  amount  brought  must  be  the 
same  as  the  total  taken  away,  the  debit  and  credit  columns  of  the  proof 
will  agree  if  the  work  is  correct,  as  also  the  totals  "Due  Clearing-house" 
and  "Due  Banks."  If  the  footings  show  this  agreement,  the  proof  is 
made,  and  the  settling  clerks  are  allowed  to  leave.  It  is  a  very  rare 
occurrence  that  the  footings  agree  on  the  first  trial.  An  iuspecton  of 
the  clearing-house  proof  will  show  that  it  contains  about  thirteen 
hundred  figures.  Each  entry  in  the  proof  may  represent  the  result  of 
sixty-three  entries  in  the  settling  clerk's  statement,  and  these  probably 
contain  from  60,000  to  70,000  figures,  made  and  footed  with  great 
rapidity,  the  entries  being  frequently  made  with  pencil.  The  credit 
column  of  the  settling  clerk's  statement,  too,  must  be  made  up  and 
footed  within  the  short  time  allowed  at  the  clearing-house.  Under 
these  circumstances  it  is  natural  that  mistakes  should  frequently  occur, 
any  one  of  which  destroys  the  exact  balance  which  should  exist  be- 
tween the  debit  and  credit  sides  of  the  proof.  When  the  proof  is  footed, 
and  tlie  footings  fail  to  agree,  the  manager  or  his  assistant  announces 
the  fact:  "The  difference  is  $5,530.25,"  or  whatever  the  amount  may  be. 
While  the  preparation  of  the  proof  has  been  in  progress  the  clerks 
have  been  at  work  verifying  their  figures  by  means  of  the  check  tickets 
and  otherwise,  and  the  error  or  errors  may  have  been  discovered  as 
soon  as  the  discrepancy  is  announced.  Usually  all  errors  are  discovered 
and  corrected  within  an  hour  from  the  announcement  of  the  clearing, 
but  sometimes  an  error  occurs  which  defies  detection  for  a  long 
time,  and  keeps  the  whole  force  of  clerks  at  work  for  two  hours  or 
more.  Forty-five  minutes  are  allowed  for  the  completion  of  the  settle- 
ment. Any  delay  beyond  this  subjects  the  delinquent  bank  to  a  fine. 
At  11:15  a.  m.  the  fines  are  doubled,  and  at  12  m.  quadrupled,  so  that 
the  fines  accumulate  rapidly  on  the  delinquent  bank  after  11:15.  The 
object  is  to  offer  an  incentive  to  the  banks  to  have  at  the  clearing- 
house clerks  whose  figures  are  distinct  and  legible,  and  who  are  rapid 
and  accurate  calculators.  If  the  examination  of  the  check  tickets  fails 
to  disclose  the  error  or  errors,  the  settling  clerks  are  ordered  by 
turns  to  pass  around  to  the  different  desks,  each  calling  off  the  amount 
of  his  exchange  to  every  other.  This  is  usually  the  final  method  of  re- 
vision, and  seldom  fails  to  disclose  the  error.  The  Settling  Sheets  are 
sometimes  exchanged  to  facilitate  the  detection  of  errors  in  the  foot- 
ings. The  corrections  as  fast  as  made  are  incorporated  with  the 
proof,  and  the  figures  appended  to  the  footings,  added  or  subtracted, 
as  the  case  may  be,  preserve  a  permanent  record  of  each  correction. 
Finally,  the  manager,  or  his  assistant,  calls  off'  from  a  balance  sheet 
corresponding  to  the  two  main  columns  of  the  proof,  the  amount  in 
thousands  of  dollars  to  the  debit  or  credit  of  each  bank  in  the  ex- 
changes of  the  day,  also  the  time  at  which  the  proof  was  announced, 
and  the  fines  and  corrections,  which  the  settling  clerks  transfer  to  cor- 
responding blanks  in  their  possession.    These  they  take  away  for  the 


HOW  CLEARINGS   ARE   MADE. 


363 


Information  of  their  respective  banlis,  whicli  ttius  have  a  record  of  the 
clearing-house  dealings  of  all  their  associates. 

New  York  Clearing-House  Proof,  Wednesday,   November  2,  1898. 


Banks. 


Due  Clear- 
ing-house. 


Banks.    Dr. 


Banks.     Cr. 


Due 

Banks. 


Bank  of  N.  Y.  Nat'l  Bk's  Ass'n 
Bank  of  the  Manhattan  Company 

Merchants'  National  Bank 

Mechanics'  National  Bank 

Bank  of  America. 

Phoenix  National  Bank 

National  City  Bank 

Tradesmen's  National  Bank 

Chemical  National  Bank 

Merchants'  Ex.  National  Bank  . . 

Gallatin  National  Bank 

Nat'l  Butchers'  &  Drovers'  Bank 

Mechanic's  &  Traders'  Bank 

Greenwich  Bank 

Leather  Mfgrs.  National  Bank  . . 
Seventh  National  Bank 
Bank  of  the  State  of  New  York  . . 
American  Ex.  National  Bank  . . 

National  Bank  of  Commerce 

National  Broadway  Bank 

Mercantile  National  Bank 

Pacific  Bank  

National  Bank  of  the  Republic  . . 

Chatham  National  Bank 

Peoples'  Bank 

National  Bank  of  North  America 

Hanover  National  Bank 

Irving  National  Bank 

National  Citizens'  Bank 

Nassau  Bank.  .... 

Market  &  Fulton  National  Bank 
National  Shoe  and  Leather  Bank 

Corn  E-vchange  Bank     

Continental  National  Bank 

Oriental  Bank 

Importers'  &  Traders'  Nat'l  B'k. 

National  Park  Bank 

East  River  National  Bank 

Fourth  National  Bank 

Central  National  Bank 

Second  National  Bank 

Ninth  National  Bank 

First  National  Bank 

N.  Y.  National  Exchange  Bank. . 

Bowery  Bank  

N.  Y.  County  National  Bank. .    .. 

German- American  Bank 

Chase  National  Bank 

Ass't  Treas.  U.  S.  at  N.  Y 

Fifth  Avenue  Bank 

German  Exchange  Bank 

Germania  Bank  .... 

Lincoln  National  Bank      

Garfield  National  Bank   

Fifth  National  Bank 

Bank  of  the  Metropolis     

West  Side  Bank  

Seaboard  National  Bank 

Si.\th  National  Bank 

Western  National  Bank 

First  National  Bank,  Brooklyn.. 
National  Union  Bank 

Liberty  National  Bank 

N.  Y.  Produce  F^xchange  Bank  .. 
Bank  of  New  Amsterdam     


787,646  39 


S7.412  21 
4,889,':)09  S3 


203,659  12 
11,070  18 
6,950  11 

1,020,155  80 


714,997  77 
156,100  08 

39,833  64 


326,220  75 
90,054  92 
50,515  38 
31,340  92 

154,255  35 

4,534  39 
289,467  99 

257,715  64 
7,.?32  69 
8,675  55 


145,585  98 


744,859  87 


8,945  61 
59,010  00 


135,228  58 
77,270  85 


202,202  34 

34,067  41 
957,800  54 


207,322  25 
13,543  14 


10,436,017  70 
11,246,800  41 
3,299,384  51 
4,895,033  76 
8,310,511  fr4 
9o0,s%  8o 
20,5%,5S6  10 

4,725,444  78 

1,078,131  56 

5,281,254  13 

153,905  37 

164,571  28 

42,608  86 

1,737,533  73 

184,010  11 

7,198,5U0  06 

10,018,685  0" 

11,012,662  17 

699,693  72 

2,169,134  52 

480,817  07 

3,616,867  57 

693,501  60 

331,457  47 

2,188,246  59 

7,502,748  06 

816,842  08 

325,016  76 

404,990  93 

828,542  82 

451,815  56 

3,540,112  82 

2,252,616  97 

226,581  91 

3,447,774  34 

7,644,913  93 

129,4-6  35 

8,861,905  83 

2,070,703  41 

461,061  54 

379,811  05 

4,622,540  53 

177,890  90 

368,211  78 

318,626  65 

1,192,658  40 

4,284,018  67 

1,179,849  45 

325,533  79 

279,104  81 

269,328  78 

770.658  76 

465,453  98 

190,719  98 

382,922  02 

235,967  18 

2,062,360  30 

99  733  H 

6,926,266  3l 

1,056,833  03 

4,.%2,835  39 

445,233  3+ 

MZ.Ttb  35 

169,242  84 


10,726,864  40 
10,459,1,54  02 
3,587,')08  66 
5,052,814  46 
9,042,613  65 
903,184  65 
15,706,646  57 

5,332,083  41 

1,241,235  66 

5,077,595  01 

142,835  19 

157,621  17 

55,768  14 

717,377  93 

476.010  91 
7,523,352  76 

11,989,563  99 

10,297,664  40 

543,593  64 

2,515,386  71 

440,983  43 

4,483,762  37 

988.897  37 

331,904  45 

2,590,955  80 

7,176,527  31 

726,787  16 

274,501  38 

373,650  01 

674,287  47 

629,743  98 

3,535,578  43 

1,%3,148  98 

324,277  78 

3,190,058  70 

7,637,581  24 

120,780  80 

9,179,435  46 

2,116,038  86 

482,3(M  73 

499,279  25 

6,257,859  16 

226,3.^9  21 

222,625  80 

323,806  75 

1,291,321  82 

5,201,194  63 

434,989  58 

546,6%  28 

270,1.59  20 

210,318  78 

977,1.53  84 

330,225  40 

113,449  13 

431,765  45 

246,982  28 

1,860,1.57  % 

65,665  70 

5,968,465  77 

1,145,491  85 

4,375,271  77 

237.011  09 
612,355  89 
155,699  70 


11,693,684  98  181,395,787  3i   181,395,787  2i  11,693,684  98 


290,846  70 

288,584  15 

157,780  70 

1.332,102  01 


606,638 
163,104 


13,159 


346,252  19 


42 


87 


917.175  % 
221,162  49 


206,495  08 


48,843,' 
11.015 


88,658  82 
12,436  38 


269,379  54 


364  PRACTICAL  BANKING, 

The  table  on  the  preceding  page  is  a  specimen  "Clearing-house Proof.'' 
The  totals  show  the  actual  transactions  on  the  day  named,  but  the 
figures  are  transposed  so  that  they  do  not  show  the  actual  trans- 
tions  of  any  single  bank,  these  not  being  published.  Consequently, 
some  of  the  banlcs  appear  as  having  much  larger,  and  othei'S  as  having 
much  smaller  transactions  than  they  actually  had. 

It  is  the  custom  at  some  clearing-houses  to  add  together  both  the 
debtor  and  creditor  sides  of  the  proof,  thus  duplicating  their  figures, 
but  the  footing  of  one  side  evidently  represents  the  total  amount  of  the 
vouchers  exchanged.  The  highest  bank  number  represented  below 
being  eighty-two,  the  natural  inference  would  be  that  this  was  the 
number  of  members  in  the  clearing-house.  An  inspection  of  the  proof 
will,  however,  show  that  there  are  eighteen  missing  numbers,  leaving 
but  sixty-four  members  at  the  date  given.  The  missing  numbers 
represent  banks  which  were  once  members,  but  are  so  no  longer,  most 
if  not  all  of  them  having  failed  or  discontinued  business.  The  num- 
ber eighty-two  i-epresents  the  total  number  of  members  that  have  ever 
belonged  to  the  clearing-house.  The  failure  of  the  Marine  National 
Bank  makes  another  missing  number,  leaving  only  sixty-three  mem- 
bers, of  which  sixty-two  are  National  or  State  banks,  and  one  the 
United  States  Assistant  Treasurer  at  New  York,  who  joined  the  clear- 
ing-house in  1878.  The  Assistant  Ti'easurer  is  almost  uniformly  debtor 
to  the  clearing-house,  and  rarely  receives  a  balance  from  the  associated 
banks. 


HOW  OUTSIDE  BANKS  MAKE  CLEAKINQS.  865 


CHAPTER  V. 
HOW  OUTSIDE   BANKS   MAKE   CLEARINGS. 

In  addition  to  the  banlvs  whicli  are  members  of  tlie  Association, 
most  of  tlie  other  New  Yorlv  City  banlis  effect  tlieir  exclianges  tbrougli 
the  clearing-house  by  the  agency  of  some  bank  that  is  a  member.  The 
banli  for  which  the  clearing  is  done  is  required  to  keep  an  adequate 
fund  on  deposit  at  the  clearing  bank,  both  as  a  compensation  for  the 
service  rendered,  and  as  a  guarantee  against  loss.  The  vouchers  to  be 
cleared  are  sent  every  morning  or  oftener  to  the  clearing  bank,  and  are 
classified  and  distributed  among  the  exchanges  of  the  latter  as  if  re- 
ceived by  it  on  deposit.  The  return  exchange  is  also  received  by  the 
clearing  bank  with  its  own  exchanges,  as  if  payable  by  it,  and  after 
being  charged  to  the  bank  for  which  the  clearing  is  done,  is  transmitted 
to  it  as  speedily  as  possible,  usually  by  messengers  dispatched  by  the 
latter  directly  after  the  clearing.  In  case  of  the  return  of  checks  for  want 
of  funds  or  other  reasons,  the  matter  would  naturally  be  adjusted 
through  the  agency  of  the  clearing  bank.  The  regulations  of  the  New 
York  clearing-house  provide,  that  "whenever  any  member  of  the  Asso- 
ciation shall  send  through  the  clearing-house  the  exchanges  of  any 
bank  or  banks  in  the  city  or  vicinity,  who  are  not  members,  such  send- 
ing shall,  ipso  facto,  and  without  other  notice,  constitute  said  member 
the  agent  for  said  bank  or  banks  at  the  clearing-house;  and  said  member 
shall  be  liable  in  the  premises  the  same  as  for  its  own  transactions,  and 
its  liability  in  all  such  cases  shall  continue  until  after  the  completion 
of  the  exchanges  of  the  morning  next  following  the  receipt  of  notice  of 
discontinuance  of  such  agency."  A  similar  regulation  is  in  force  at 
New  Orleans. 

At  New  York  there  are  34  banks  and  11  trust  companies  in  that  city 
that  clear  through  other  banks,  besides  11)  banks  and  7  trust  com- 
panies that  are  doing  business  in  Brooklyn,  and  9  banks  in  .Jersey 
City,  Hol)oken  and  Staten  Island.  At  Boston,  outside  banks  availing 
themselves  of  the  prfvileges  of  the  clearing-house  must  pay  towards  its 
expenses  a  sum  to  be  annually  determined  by  the  clearing-house  com- 
mittee. At  some  of  the  clearing-houses,  members  are  not  allowed  to 
make  the  exchanges  of  any  bank  outside.  This  is  the  case  at  Indian- 
apolis, Lowell  and  Worcester. 


366  PRACTICAL   BANKING. 

A  plan  for  clearing  gold  checks  was  adopted  February  14,  1872,  and 
the  exchange  of  such  checks  commenced  in  March  following  and  was 
continued  until  the  resumption  of  specie  payments,  January  1, 
1879.  This  exchange  was  kept  distinct  from  the  exchange  of  currency 
checks,  but  took  place  at  the  same  time  and  place  and  was  conducted 
in  the  same  way.  The  total  of  gold  clearings  during  this  period  of 
nearly  seven  years  was  $14,066,282,911.94,  and  the  balances  paid  in  gold 
or  gold  certificates  amounted  to  $2,236,317,602.24,  or  15.9  per  cent,  of  the 
clearings. 


PAYMENT  OF   BALANCES  867 


CHAPTER  VI. 


PAYMENT  OF  BALANCES. 


The  exchanges  being  completed,  the  next  step  is  the  paym'^nt  of 
balances.  At  New  York  the  balances  must  be  paid  by  the  debtor  banks 
to  the  clearing-house  between  12:30  and  1:30  o'clock  p.  m..  either  in 
actual  coin,  United  States  legal-tender  notes,  or  in  United  States  or 
clearing-house  certificates.  At  1:30  o'clock,  or  as  soon  thereafter  as 
the  accounts  can  be  made  up,  the  creditor  banks  receive  the  balances 
from  the  manager  at  the  same  place,  provided  all  the  balances  due 
from  the  debtor  banks  have  been  paid.  Should  any  bank  make  default 
in  the  payment  of  its  balances  at  the  proper  hour,  the  amount  of  that 
balance  must  be  immediately,  on  requisition  from  the  manager,  fur- 
nished to  the  clearing-house  by  the  several  banks  exchanging  with  the 
defaulting  bank  in  proportion  to  their  respective  balances  against  that 
bank  resulting  from  the  exchanges  of  the  day.  The  amounts  so  fur- 
nished constitute  claims  against  the  delinquent  bank  only,  the  clear- 
ing-house being  in  no  way  responsible.  The  defaulting  bank  is  imme- 
diately suspended  from  the  clearing-house.  At  several  of  our  Amer- 
ican clearing-houses  the  regulations  provide  that  until  the  settlement  is 
completed  and  balances  are  paid  the  exchange  shall  be  in  trust  only, 
that  the  vouchers  delivered  at  the  clearing-house  shall,  until  that  time, 
remain  the  property  of  the  bank  presenting  them,  and  that  in  case  of 
default  by  any  member  in  paying  its  balances,  such  vouchers  shall  be 
returned  unmutilated  to  the  banks  from  which  they  were  received. 
Some  recent  complications  at  New  York,  arising  from  the  failure  of  the 
Marine  National  Bank  and  of  (Jrant  and  Ward,  suggest  the  advisability 
of  some  similar  regulation  there.  It  may  be  stated  here  that  the  opera- 
tions of  the  clearing-house  have  received  legal  recognition,  and  a  presen- 
tation of  a  demand  through  the  clearing-house  is  a  legal  presentation  by 
virtue  of  custom  among  bankers  and  merchants. 

Errors  in  the  exchanges,  and  claims  arising  from  the  return  of 
checks,  or  from  any  other  cause,  are  adjusted  directly  between  the 
banks  who  are  parties  to  them,  and  not  through  the  clearing-house,  the 
association  being  in  no  way  responsible  for  them. 

As  the  banks  severally  pay  their  balances  the  manager  gives  each  a 
receipt  in  the  following  form: 


368  PRACTICAL  BANKING. 


No.  6.  New  York  Clearing- House, 

January  /-,  iSgg. 
Received  from  the  Bank  of  America  Two  hundred  and  forty  thousand, 
one  hundred  and  sixty-six  ^Vs  dollars  in  full  for  balance  due  the  associated 
banks. 
$240,166.60.  Manager. 


Sometimes  a  current  ledger  account  is  liept  with  the  clearing-house, 
charging  it  with  all  money  or  vouchers  sent,  and  crediting  it  with  all 
that  is  returned;  and  this  receipt  is  charged  as  a  voucher  on  the  books 
of  the  paying  bank.  The  messengers  also  give  to  the  manager,  in  a  book 
with  suitable  forms  prepared  for  that  purpose,  receipts  for  all  balances 
delivered  to  them.  It  is  only  for  a  period  of  about  one  hour,  while  re- 
ceiving and  paying  the  balances,  that  the  clearing-house  has  the  custody 
of  any  money,  and  during  that  time  only  as  trustee,  receiving  from  one 
to  pay  another. 

Reclamations  for  eiTors  and  deficiencies,  In  specie  or  United  States 
legal-tender  notes,  received  at  the  clearing-house,  contained  in  bags  or 
packages,  sealed  and  marked  in  conformity  with  the  rules  of  the  clear- 
ing-house, must  be  made  by  1  o'clock  on  the  following  day  by  the 
receiving  bank  against  the  bank  whose  mark  the  sealed  package  bears. 
Notice  of  such  error  must  be  sent  immediately  upon  discovery,  the 
clearing-house  not  being  responsible  for  the  contents  of  such  bags  or 
packages.  Serious  difficulties  recently  arose  at  New  York  in  a  matter  of 
this  kind,  growing  out  of  the  failure  of  the  Marine  National  Bank.  On 
the  Gth  of  May,  1S84,  this  bank  enclosed  in  the  usual  manner  in  a 
sealed  envelope,  marked  with  the  aggregate  amount,  containing  as 
items  constituting  its  claims  upon  the  First  National  Bank  for  exchange 
through  the  clearing-house,  three  checks  drawn  by  Ferdinand  Ward 
upon  the  First  National  Bank,  amounting  together  to  .$215,000.  As 
Ward  at  that  time  had  in  the  First  National  Bank  only  $2,213.98,  the 
latter  refused  the  checks.  The  Marine  National  Bank  having  in  the 
meantime  failed,  after  paying  its  balance  of  $550,000  at  the  clearing- 
house, the  First  National  Bank  informed  the  clearing-house  that  the 
checks  were  not  good  and  claimed  to  be  reimbursed  by  the  associated 
banks  or  the  clearing-house. 

A  special  committee  of  the  Association,  appointed  to  consider  the 
subject,  decided  against  this  claim,  but  the  affair  resulted  in  the  adop- 
tion, .June  4,  1884,  of  two  amendments  to  the  constitution  of  the  associa- 
tion. One  of  these  authorizes  the  clearing-house  committee  to  examine 
any  member  of  the  association,  and  to  require  security  for  the  payment 
of  its  balances  to  the  clearing-house;  the  other  provides  that  in  case 
of  refusal  or  inaljility  of  any  banlv  to  refund  the  amount  of  checks, 
drafts  or  other  items  returned  as  not  good,  the  bank  holding  them  may. 


PAYMENT  OF  BALANCES.  369 

before  1  o'clock,  report  to  the  manager  the  amount  of  the  same,  and 
the  manager,  with  the  approval  of  the  ch'aring-liouse  committee,  is  to 
talce  from  the  settling  sheet  of  both  hanlis  the  amount  of  such  checks  or 
other  items  so  reported.  This  will,  of  course,  increase  any  balance  due 
from  the  presenting  bank,  for  which  all  the  banks  having  balances 
against  it  are  responsible.  The  clearing-house  has  also  recently  taken 
action  on  another  matter  which  has  been  agitated  for  many  years, 
namely,  the  payment  of  interest  on  deposits.  On  the  recommenda- 
tion of  a  committee  appointed  June  4,  and  subsequently  increased, 
the  associated  banks,  on  July  29,  1884,  adopted,  subject  to  the 
ratification  of  the  banks  individually,  two  amendments,  one  forbidding 
any  member  to  pay  interest  on,  or  allow  compensation  for,  deposits 
after  January  1,  1885,  the  other  providing  that  no  checks  shall  pass 
through  the  clearing-house  except  those  drawn  on  members.  Under  this 
amendment,  if  it  shall  come  in  force,  banks  outside  could  still  clear  on 
one  side  through  members— that  is,  the  checks  and  other  claims  on  the 
members— but  the  clearing-house  would  be  closed  against  checks  drawn 
on  banks  outside,  and  these  checks  would  be  less  current.  The  outside 
banks  may  thus  be  forced  to  become  members,  and  bear  a  share  of  the 
expense  from  which  they  have  hitherto,  to  the  prejudice  of  the  mem- 
bers, escaped. 


370  PRACTICAL  BANKING. 


CHAPTER   Vll. 


CLEARING-HOUSE    CERTIFICATES. 


The  labor,  responsibility  and  risk  attending  the  handling  of  the 
funds  used  in  paying  the  balances  have  been  greatly  abridged  by  the 
use  of  certificates.  These  are  of  three  kinds— clearing-house  gold  cer- 
tificates, United  States  gold  certificates,  and  United  States,  legal-tender 
certificates.  Clearing-house  gold  certificates  are  issued  in  accordance 
with  a  plan  adopted  in  September,  1853,  against  gold  deposited  with 
one  of  the  associated  banks,  and  are  of  the  denominations  of  $1,000, 
$5,000  and  $10,000.  They  are  numbered,  registered  and  countersigned 
by  the  proper  officer,  and  are  endorsed  when  paid  into  the  clearing- 
house by  the  paying  bank,  and  when  paid  out  are  charged 
to  the  receiving  bank,  so  that  they  can  always  be  traced  by  the 
records.  They  are  to  be  used  only  in  settlements  between  the  banks, 
and  any  member  of  the  clearing-house  which  shall  pay  or  deliver  to 
any  party,  not  a  member,  any  such  certificate,  is  subject  to  a  fine  of 
one  hundred  dollars.  The  Bank  of  America  was  selected  as  the  deposi- 
tory of  the  associated  banks  at  the  time  the  clearing-house  was  estab- 
lished. The  issue  of  legal-tender  notes  by  the  government  and  the  sus- 
pension of  specie  payments  reduced  all  ordinary  settlements  to  a  paper 
basis,  and  the  issue  of  clearing-house  certificates  was  discontinued. 
In  1879,  after  the  resumption  of  specie  payments  and  the  discontiuu- 
arce  of  further  issues  of  gold  certificates  by  the  government,  the  clear- 
ing-house gold  certificates  were  revived,  the  Bank  of  America  befng 
again  selected  as  the  depository.  The  first  of  the  new  certificates  were 
issued  October  14,  1879.  The  amount  of  these  certificates  outstanding 
June  30,  1881,  was  $41,858,000,  but  has  since  been  reduced.  United 
States  gold  certificates  were  authorized  by  Act  of  March  3,  1863,  and 
were  used  for  clearing-house  purposes  soon  after  the  passage  of  the 
National  Bank  Act.  The  first  issue  was  made  November  13,  1865.  They 
are  issued  against  deposits  of  gold  coin  and  bullion  made  with  the 
Secretary  of  the  Treasury,  in  denominations  of  twenty  dollars  and  up- 
wards, corresponding  with  the  denominations  of  United  States  notes. 
Further  issues  were  discontinued  December  1,  1878,  but  were  resumed 
under  act  of  .July  12,  1882,  and  they  have,  in  part,  superseded  the  gold 
clearing-house  certificates.    The  United  States  legal-tender  certificates 


CLEARING-HOUSE   CERTIFICATES.  371 

are  issued  under  act  of  June  8.  1872,  against  deposits  of  legal  tenders 
made  with  tlie  Secretary  of  the  Treasury  by  any  national  banlviug  asso- 
ciation, in  amounts  of  .^10,000  and  upwards,  and  are  of  denominations 
not  less  than  $5,000.  They  are  paj'able  on  demand  in  United  States 
notes  at  the  place  where  the  deposits  were  made,  and  are  counted  as 
part  of  the  lawful  money  reserve  of  the  national  banl<s.  Before  the 
resumption  of  specie  payments  they  were  much  used  in  tlie  clearing- 
house settlements,  being  frequently  called  clearing-house  legal-tender 
certificates,  and  the  amount  outstanding  June  30,  1875,  was  $.50,045,000. 
The  amount  now  in  use  is  comparatively  insignificant,  and  they  appear 
only  to  a  small  extent  in  the  clearing-house  settlements.  The  amounts 
and  percentages  paid  in  coin,  currency  and  certificates  in  the  clearing- 
house settlements  at  New  York,  in  1883,  were  as  follows: 

Paid  in  gold  coin 

United  States  gold  certificates     

Clearing-House  gold  certificates        

United  States  legal-tender  certificates. 
Legal  tenders  and  change 


It  will  be  noticed  that  only  one-half  of  one  per  cent,  of  the  balances 
was  paid  in  actual  cash,  and  this  amounts  to  only  one-fiftieth  of  one 
per  cent,  of  the  clearings. 

The  system  of  paying  clearing-house  balances  whollj-  or  partially 
in  certificates  has  been  adopted  at  Boston,  Philadelphia.  Chicago,  Balti- 
more, San  Francisco,  Milwaukee,  and  St.  Paul.  At  Cincinnati.  St. 
Louis,  New  Orleans,  Louisville,  Columbus,  and  Memphis,  the  manager 
of  the  clearing-house  issues  checks  or  cetificates  on  the  debtor  in 
favor  of  the  creditor  banks,  which  must  be  paid  to  the  satisfaction  of 
the  latter.  The  form  used  at  St.  Louis,  which  will  serve  to  illustrate, 
is  as  follows: 


$197,000  CO 

.0 

564,213,000  00 

36.1 

990,925,000  00 

63.3 

1,575,000  00 

.1 

7,768,0%  49 

.5 

$1,564,678,0%  49 

100  0 

$5,000.  St.  Louis  Clearino-House,  July  18,  1899. 

In  the  settlement  of  the  balances  of  the  Exchanges  made  between 
members  of  this  Association  to-day,  there  is  due  from  (No.  6)  the  Com- 
mercial Bank,  five  thousand  dollars,  payable  on  demand  to  (No.  8)  the 
Fifth  National  Bank. 

Not  transferable,  and  without  recourse 
upon  any  other  member  of  this  Association 
after  two  o'clock  p.  m.  of  this  day.  )  H.  Chasb,  Manager. 


The  forms  are  different  at  different  clearing-houses,  but  their  pur- 
port is  substantially  the  same  in  imposing  upon  some  debtor  bank  the 
duty  of  paying  a  certain  sum  to  some  creditor  bank  in  settlement  of 
the  balances,    In  this  case  the  payment  of  balances,  as  well  as  the 


372  PRACTICAL  BANKING. 

exchange  of  vouchers,  is  a  matter  settled  exclusively  between  the 
banks,  the  clearing-house  handling  no  money  and  having  nothing  to  do 
with  the  matter,  except  to  apportion  the  payments. 

At  Providence,  Hartford,  New  Haven,  Worcester,  Springfield, 
Lowell,  Syracuse,  and  to  some  extent  at  Portland,  Maine,  balances  are 
paid  by  checks  on  New  York  or  Boston,  except  where  they  are  for 
small  amounts.  This  plan  is  similar  in  principle  to  that  prevailing  in 
the  British  and  other  European  clearing-houses.  The  handling  of  cash 
is  entirely  dispensed  with,  so  far  as  checks  drawn  on  some  common  de- 
pository are  used.  The  check  issued  in  these  cases  would  be  for- 
warded by  the  creditor  bank  to  its  New  York  or  Boston  correspondent, 
which  might  also  be  the  depository  of  the  debtor  bank.  If  not,  the 
check  would  be  either  collected  directly,  or  through  the  New  York  or 
Boston  clearing-house. 


THK    RECORDS    KEPT   AND   THEIR   USES.  373 


CHAPTER     VIII. 


THE  RECORDS  KEPT  AND  THEIR  USES. 


The  payment  of  the  balances  being  completed  there  remains  the 
duty  of  making  up  a  record  of  the  day's  business  for  preservation  and 
future  reference.    This  is  a  matter  the  importance  of  which  is  some- 
times overlooked.    However  small  the  transactions  of  a  clearing-house 
may  be  they  are  destined  to  be  of  value  in  the  future  as  a  means  of 
measuring  growth,  if  nothing  else.    There  are,  too.  many  problems  of 
interest   to   bankers,   on   which   light   would   thrown   by  a   study  and 
comparison  of  clearing-house  data  carefully  and  intelligently  prepared. 
In  the  interests  of  philosophic  inquiry  it  is  worth  while  to  preserve  all 
facts  relating  to  operations  of  so  interesting  a  character  as  those  of 
the  cleariug-liouse.    At  New  York,  where  the  volume  of  business  justi- 
fies it,   very  full  and  elaborate  records  are  kept,   showing  every   im- 
portant fact  connected  with  the  business,  and  it   is  possible  to  learn 
there  many  particulars  of  which  no  record  is  preserved  at  other  clear- 
ing-houses.   A  ledger  is  kept  in  which  are  posted  the  daily  footings  of 
the  proof,  "exhibiting  a  continuous  history  of  the  aggregate  dealings  of 
^he  banks."    The  entire  proof,  also,  is  transferred  into  a  book  kept  for 
that  purpose.    "In  like  manner,  the  daily  debit  and  credit  exchange  of 
each  bank  is  posted  to  its  account,  and  shows  not  only  the  extent  of 
its  business,  but    measurably    its    character    also.    This    is    the    most 
essential  of  all  the  records.    It  is  that  which   brings  thte  banks  sep- 
arately  within   the   supervision   and   control   of   the  clearing-house— a 
necessary  complement  of  the  joint  responsibility  created  by  the  organi- 
zation."*   If   the   daily   records   of   its   transactions   show    that    its   re- 
serves are  undergoing  constant  depletion   without   any  known   source 
of    replenishment,   its  credit  at  the  clearing-house   is  affected,   and   it 
may  be  subjected  to  an  examination  by  a  committee  consisting  of  the 
clearing-house    committee    and    a    committee    of    five    bank    officers, 
which    joint    committee    has    power  to   suspend   any  bank   from  the 
privileges    of    the    clearing-house,    "in    case    of    extreme    emergency," 
until  the  pleasure  of  the  association  is  ascertained.    To  effect  a  sus- 
pension a  majority  of  each  committee  must  be  present  and   the  vote 


♦Gibbons'  Banks  of  New  York  and  the  Panic  of  IS.")?. 


374  PRACTICAL   BANKING, 

must  be  unanimous.    The  association  alone  has  the  power  of  expelling 
a  member. 

A  summary  book  is  made  up  from  the  daily  postings,  showing  the 
total  receipts  and  payments  by  each  bank  for  the  week,  and  also  for 
the  month  and  year.  The  adverse  balances  of  one  period  may  be 
compensated  by  the  favorable  balances  of  a  succeeding  period,  and 
thus  the  state  of  the  reserve  of  each  bank  is  followed  up  with  unfailing 
precision.  "If  at  the  end  of  a  month  it  appears  that  a  bank  has  paid  in 
to  the  house  one  million  of  dollars  more  than  it  has  received,  and 
if  it  has  no  foreign  sources  of  replenishment,  the  conclusion  is  that  it 
has  supplied  itself  by  purchase.  If  the  same  result  should  be  shown 
at  the  end  of  another  month,  without  signs  of  recuperation,  and  so  on 
continuously,  it  becomes  evident  that  the  institution  is  carrying  a  forced 
average  of  loans,  and  it  will  receive  a  call  from  the  committee.  *  *  * 
But  this  extreme  case  is  most  unlikely  to  happen.  The  credit  that  every 
member  derives  from  the  association  is  too  valuable  to  be  cast  off  or 
treated  with  lightness.  The  action  of  the  association  is  too  impartial 
and  just  to  give  offense,  or  to  admit  excuse  for  disregarding  its  advice." 

"A  positive  principle,  or  x'ule,  of  financial  government,  has  been 
demonstrated  by  this  action  of  the  clearing-house  on  the  city  banks, 
that  is,  the  restriction  of  loans  by  the  necessity  of  maintaining  a  cer- 
tain average  of  coin  (or  legal  tenders)  from  resources  within  the  bank. 
Borrowing  from  day  to  day  will  no  longer  do.  It  cannot  be  concealed. 
The  records  will  show  conclusively  whether  the  average  is  kept  up  by  a 
healthy  business,  or  by  a  forcing  process."* 

"The  limitation  imposed  does  not  stop  at  the  bank  loans,  but 
passes  through  them  into  the  commercial  system.  The  loans  rest  on 
the  coin  (or  legal  tender)  average,  this  rests  on  the  deposits,  and  the 
deposits  rest  on  the  means  of  trade.  The  clearing-house  has  not 
created  any  new  dependence  of  this  kind,  but  it  has  brought  the  facts 
into  a  manageable  shape,  and  established  something  like  an  axiom  in 
the  banking  business.  It  is  not  a  mere  arbitrary  requirement  that  a 
specific  average  of  coin  (or  legal  tenders)  must  be  maintained,  but  it  is 
the  constitution  of  that  average  as  a  result,  and  the  control  of  it  by  an 
organiaztion  which  permits  no  escape  and  works  no  injustice— and  what 
that  organization  is  for  the  city  of  New  York,  the  city  is  for  the 
country;  a  restrictive  power  over  the  general  currency  of  trade  must 
be  exerted  through  this  channel  to  its  remotest  sections." 

Weekly  publication  of  bank  statements  had  been  required  by  law 
even  before  the  establishment  of  the  clearing-house,  but  many  ways 
of  doctoring  such  statements  were  devised,  so  that  the  objects  of  the 
law  were  only  partially  realized.  Each  bank  in  the  clearing-house  is 
required  to  furnish  to  the  manager  every  Saturday,  on  or  before  12 
o'clock  m.,  a  statement  showing  the  average  amount  of  loans  and  dis- 
counts, of  specie,  of  legal-tender  notes,  of  deposits,  and  of  circulation, 


*r.ibbons'  Banks  of  New  York  and  the  Panic  of  1857. 


THE  RECORDS  KEPT   AND   THEIR   USES.  375 

for  the  preceding  week.  These  statements  ai-e  tabulated  by  the  man- 
ager and  given  to  the  public.  They  have  this  advantage  over  the  state- 
ments made  under  the  law,  that  the  daily  operations  of  the  clearing- 
house furnish  a  means  of  testing  their  accuracy.  Deception  may  still 
be  practiced,  but  it  is  likely  sooner  to  come  to  light  than  it  would 
but  for  the  searching  test  afforded  by  the  daily  settlements. 

''The  improvement  in  the  character  of  its  loans  is  consequent  upon 
the  fact,  that  if  a  bank  becomes  embarrassed  by  their  imprudent  ex- 
tension, it  can  get  a  good  class  of  paper  rediscounted,  and  thus  obtain 
immediate  relief;  whereas  if  its  discounted  paper  is  of  a  low  grade,  or 
if  the  assistance  required  is  to  help  the  directors  only,  and  not  its 
dealers  generally,  it  loses  sympathy  and  reputation.  The  character  of 
its  discounted  bills  is,  therefore,  its  sheet  anchor  in  a  storm.  In  fact, 
the  credit  of  the  clearing-house  association  would  itself  be  impaired 
if  it  should  allow  one  of  its  members  to  fail  from  inability  to  convert 
good  assets  into  cash  funds."*  One  of  the  ways  liy  which  relief  is 
afforded  in  such  cases  is  by  the  issue  of  clearing-house  certificates 
against  a  deposit  of  securities,  such  certificates  to  be  available  in  the 
settlement  of  balances  at  the  clearing-house.  In  the  late  crisis  at  New 
York  some  $25,000,000  of  such  certificates  were  thus  issued  to  different 
banks  against  accepted  securities,  certificates  in  no  case  being  issued  to 
an  amount  exceeding  seventy-five  per  cent,  of  such  securities.  This 
measure  afforded  substantial  relief,  and  the  certificates  were  mostly 
withdrawn  within  sixty  days.  The  same  plan  was  tried  with  good 
results  in  1861-2  and  in  1873. 

Other  records  of  clearing-house  operations  may  be  made  possessing 
practical  value.  Says  Colonel  W.  M.  Grosvenor,  in  a  paper  which  was 
read  at  the  convention  of  the  American  Bankers'  Association  In  1882: 
"In  the  mere  observation  of  the  course  of  exchanges  in  different  sec- 
tions and  at  different  localities,  many  business  men  affirm  that  they 
have  gained  important  advantages.  They  have  been  warned  in  season, 
when  the  business  of  a  distant  city  was  being  diverted  to  others,  or 
depressed  by  social  or  political  influences.  They  have  been  advised  in 
season,  by  gradually  expanding  exchanges,  that  industry  in  a  distant 
region  was  reviving,  and  prompt  effort  in  that  direction  has  been 
rewarded.  Investors  have  been  guided  in  the  choice  of  securities  by 
evidence  of  rapid  growth  in  the  business  of  cities.  Lenders  have  been 
warned  by  unnatural  expansion  and  violent  fluctuation  in  the  exchanges 
at  a  particular  city,  that  excessive  speculation  was  approaching  its 
climax  there,  so  that  loans  were  'extra  hazardous.'  Information  of 
more  general  importance  has  repeatedly  been  obtained.  The  inquiry 
is  yet  in  its  infancy,  and  comparatively  little  is  known  of  the  meaning 
of  records  wliiih.  in  due  time,  will  enable  men  to  note  the  coming  of 
many  finani-ial  storms  as  surely  as  the  march  of  an  area  of  low 
barometer  across  the  country  is  traced  by  the  signal  service." 

♦Gibbons. 


376  PRACTICAL  BANKING. 

At  one  of  the  meetings  of  the  American  Bankers'  Association  (1884), 
J^Ir.  Comeg.vs.  President  of  the  Philadelphia  National  Banlv,  suggested 
that  the  clearing-house  might  keep  another  record,  with  a  brief  ex- 
planation of  which  we  shall  close  this  chapter.  The  risks  and  losses 
growing  out  of  the  purchase  of  one-name  paper  are  well  understood, 
especially  among  bankers.  To  lessen  the  risk  thus  incurred,  he  pro- 
posed that  a  credit  ledger  should  be  opened  in  the  clearing-house  of 
any  city,  in  which  should  be  kept  a  record  of  the  names  of  payers  and 
endorsers,  and  dates  of  maturity  of  all  notes  amounting  to  one  thousand 
dollars,  or  more,  held  by  the  banks,  purchased  of  brokers.  The  reports 
of  such  paper,  he  further  proposed,  should  be  made  to  the  clearing- 
house anonymously,  and  information  concerning  such  names  should  be 
given  only  to  members  of  the  clearing-house.  Large  sums  of  money, 
he  declared,  might  be  saved  to  banks  by  means  of  this  information. 


FINKS.  37 


CHAPTER     IX, 


FINKS. 


The  minor  (lellnqiicucies  of  the  banks  in  their  relations  with  the 
clearing-house  are  dealt  with  by  means  of  lines.  The  following  scale 
of  tines  at  New  York  will  serve  as  an  illustration: 

J^irst.— All  errors  on  the  Credit  side  of  the  Settling-  Clerk's  Statement  (t.  e.  in  the 
amount  brought)  whether  of  footing  or  entry,  and  all  errors  causing  disagree- 
ment between  the  credit  entries,  the  check  tickets,  and  the  exchange  slips,  each,  $3  00 

Second. — Errors  in  making  the  Debit  (;'.  e,  the  amount  received)  entries each,  2  00 

Third. — Errors  in  the  Tickets  reported  to  the  clearing-house,  causing  disagreement 
between  the  balances  and  aggregates each,  2  00 

Fourth. — Errors  in  footing  the  amount  received each,  1  00 

Az/i(A.— Disorderly  conduct  of  Clerk  or  Porter,  at  the  clearing-house;  or  disregard  of 

Manager's  instructions each  offense,  2  00 

Sixth. — Clerk  or  Porter  failing  to  attend  punctually  with  statements  and  tickets 

complete  at  the  morning  exchanges each,  2  00 

iVz'fn/A.— Debtor  banks,  failing  to  appear  to  pay  their  balances  before  1:30  o'clorjc 

P.  M 3  00 

Eighth. — Errors  in  delivery  or  receipt  of  exchanges etch,  1  00 

Forty-five  minutes  are  allowed  for  the  proof.  For  all  errors  re- 
maining undiscovered  at  11:15  a.  m.  the  fines  are  doubled,  and  at  12 
m.  quadrupled.  Once  in  each  month  the  manager  reports  to  each  bank 
the  amount  of  fines  against  it  for  the  preceding  calendar  month,  with 
the  total  amount  of  fines  from  all  the  banks  and  the  number  of  banks 
fined.  Clerks  are  required  to  conduct  themselves  in  a  quiet  and  orderly 
manner,  to  be  attentive  to  their  duties,  and  to  remain  at  their  desks 
while  the  proof  is  being  made,  and  until  it  is  announced.  Loud  con- 
versation, or  anything  tending  to  create  disturbance  or  confusion,  is  not 
permitted.  The  fines,  though  not  large  considering  the  amounts  in- 
volved, are  sufficient  to  make  it  an  object  for  banks  to  employ  clerks 
who  are  rapid  and  accurate  in  figures,  though  there  are  very  marked 
differences  of  aptness  in  this  particular. 


378  PRACTICAL  BANKING. 


CHAPTER      X. 


HISTORY  OF  THE  NEW  YORK  CLEARING-HOUSE. 


The  first  proposition  for  establisliing  a  clearing-house  in  New  York 
was  made  by  Albert  Gallatin  in  1841.  But  an  organization  was  not 
effected  until  twelve  years  afterward.  Meanwhile  the  banks  were 
making  settlements  with  each  other  at  great  risk  and  inconvenience 
by  the  methods  then  prevailing.  Each  bank  was  obliged  to  keep  a 
ledger  account  with  every  other  bank;  and  settlements  were  made 
between  them  by  cashier's  drafts  every  Friday.  To  Mr.  George  D. 
Lyman,  the  first  manager  of  the  New  York  clearing-house,  belongs 
chiefly  the  credit  of  systematizing  its  details  and  planning  its  records 
in  its  earlier  history.  Mr.  Lyman  thus  concisely  sums  up  the  economy 
of  time  and  labor  effected  by  the  clearing-house: 

"On  the  day  when  the  clearing-house  began  business,  about  twenty- 
seven  hundred  open,  active  accounts  on  the  ledgers  of  the  associated 
banks  were  balanced— the  most  of  them  for  the  first  time,*  and  all  of 
them  finally.  The  business  which  had  rendered  necessary  this  large 
number  of  accounts  was  thenceforth  accomplished  more  quickly,  with 
less  annoyance  to  bank  officers,  and  with  greater  safety  to  all  con- 
cerned.   The  results  may  be  briefiy  enumerated  as  follows: 

"First.— The  condensation  for  each  bank  of  forty-eight  balances 
into  one,  and  the  settlement  of  that  balance  without  a  movement  of 
specie. 

"Secondly.— The  avoidance  of  numerous  accounts,  entries  and 
postings. 

"Thirdly.— Great  saving  of  time  to  the  porters  and  of  risk  in  making 
exchanges  and  settlements  from  bank  to  bank. 

"Fourthly.— Relief  from  a  vast  amount  of  labor  and  annoyance  to 
which  the  great  army  of  cashiers,  tellers  and  bookkeepers  were  sub- 
jected under  the  old  system, 

"Fifthly.— The  liberation  of  the  associated  banks  from  all  injurious 
dependence  on  each  other. 


*"The  practice  of  the  banks  had  been  to  draw  settlement  checks 
on  each  other  for  even  thousands  of  dollars  near  the  balance  due,  and 
the  account  was  never  settled  to  a  point." 


HISTORY   OF  THE  NEW  YORK  CLEARlNQ-HOUSE.  379 

"Sixthly.— The  ubsoliite  facility  afforded  by  the  books  of  the  clear- 
ing-house for  knowing  at  all  times  the  management  and  standing  of 
every  bank  in  the  association." 

When  organized  the  association  consisted  of  fifty-two  members, 
wliich  have  now  increased  to  sixty-four,  though  there  have  been  several 
changes  during  this  interval,  caused  by  the  failure  or  retirement  of 
members.  One  of  the  most  important  features  of  the  association  is 
the  examination  of  every  bank  that  applies  for  membership  and 
watchfulness  always  exercised  over  it  after  its  admission.  Each 
member  has  a  direct  interest  in  every  other,  for  it  does  not  wish  to  run 
the  risk  of  loss  in  giving  credit  to  checks  of  an  insolvent  institution. 
So  whenever  there  is  any  reason  to  doubt  the  solvency  of  one  of  their 
members,  an  examination  is  made  under  the  direction  of  the  governing 
committee  of  the  clearing-house,  and  the  truth  is  ascertained.  More- 
over, this  examination  is  no  sham,  ignorant  atfair,  but  is  likely  to  dis- 
close the  truth.  If  the  business  of  a  bank  is  in  a  bad  way,  the  com- 
mittee decides  on  a  course  of  action  that  the  bank  must  follow,  or 
withdraw  from  the  clearing-house.  No  bank  wishes  to  withdraw,  for 
to  do  this  is  to  set  the  seal  of  condemnation  upon  itself.  Every  one 
knows  what  this  means,  that  the  institution  is  no  longer  worthy  of 
credit.  To  withdraw  under  such  circumstances  would  be  essentially  the 
same  thing  as  to  close  its  doors. 

When,  therefore,  a  bank  is  desirous  of  becoming  a  member  of  the 
clearing-house  it  must  apply  to  the  committee  on  admission,  who 
make  such  examination  of  the  bank  as  they  deem  necessary.  The 
personal  character  and  standing  of  its  managers  is  also  considered. 
The  bank  may  be  admitted  to  the  association  by  a  three-fourths  vote 
(by  ballot)  of  the  members  present  at  any  meeting,  on  such  conditions 
as  three-fourths  of  those  present  may  deem  expedient.  The  new  mem- 
ber must  assent  to  the  constitution  and  pay  an  admission  fee,  varying 
from  $1,000,  where  the  capital  does  not  exceed  $500,000,  up  to  $7,500, 
where  the  capital  exceeds  $5,000,000.  Any  member  increasing  its  cap- 
ital must  pay  an  additional  sum  corresponding  with  these  rates. 

The  New  York  clearing-house  had  not  been  long  in  operation  be- 
fore weakness  was  revealed  in  the  management  of  eight  banks,  and 
these  were  obliged  to  liquidate  in  consequence  of  their  inability  to 
make  their  daily  settlements.  In  1884  three  others  came  to  their  end 
through  mismanagement.  The  extent  of  the  supervision  exercised  by 
this  association  over  its  members  the  public  will  never  know,  be- 
cause it  is  best  that  much  of  it  should  remain  secret.  The  banks  thus 
associated  learn  more  about  one  another  than  they  ever  would  if  acting 
entirely  alone,  and  examinations  are  made,  and  warnings  given,  of 
which  the  public  has  no  knowledge.  The  direct  interest  that  every 
bank  has  in  knowing  the  true  condition  of  every  other  member  is  one 
of  the  great  merits  of  the  system. 


380 


PRACTICAL   BANKING. 


The  niag:nitiule  of  the  transactions  of  the  New  York  clearing-house 
may  be  clearly  sho\i'n  from  the  following  table: 

Clkarings  and  Balances  of  the  New  York  Clearing-House. 


Year. 

No.  of 
banks. 

Capital.* 

Clearings. 

Balances 
paid  in 
money. 

Average 

daily 
clearings. 

Average 
daily  bal- 
ances paid 
in  money. 

Bal- 
ances  to 
clear- 
ings. 

Per  ct. 

18S4 

SO 

$47,044,900 

15.750.455.987 

1297.411,494 

$19,104,505 

$988,078 

S.2 

1855 

48 

48,884,180 

5,362,912,098 

289.694.137 

17,412,052 

940,565 

5.4 

1856 

SO 

52,883,700 

6,906,213,328 

334.714,489 

22,278,108 

1,079,724 

4.8 

1857 

SO 

64,420,200 

8,333,226,718 

365,313.902 

26,%8,371 

1.182,246 

4.4 

1858 

46 

67,146,018 

4,756,664,386 

314.238,911 

15,393,736 

1,016,954 

6.7 

1859 

47 

67,921,714 

6,448,005,956 

363,984,683 

20,867,333 

1,177,944 

5.6 

1860 

SO 

69,907,435 

7,231,143,057 

380,693,438 

23,401,757 

1,232,018 

5.3 

1861 

50 

68,900,605 

5,915,742,758 

353,383,944 

19,269,520 

1,151,088 

6.0 

1862 

50 

68,375,820 

6,871,443,591 

415,530,331 

22,237,682 

1,344,758 

6.0 

1863 

50 

68  972,508 

14,867,597,849 

677,626,483 

48,428,657 

2,207,252 

4.6 

1864 

49 

68,586.763 

24,097, 1%,656 

885.719.205 

77,984,455 

2,866,405 

3.7 

1865 

SS 

80,363,013 

26,032,384,342 

1,035,765,108 

84,7%,040 

3,373,828 

4.0 

1866 

S8 

82,370,200 

28,717.146,914 

1,066,135,106 

93,541,195 

3,472.753 

3.7 

1867 

58 

81,770.200 

28  675,159,472 

1,144,%3,451 

93,101,167 

3,717,414 

4.C 

1868 

59 

82,270,200 

28,484,288,637 

1,125,455.237 

92,182.164 

3,frt2,250 

40 

1869 

59 

82,720,2110 

37,407,028,987 

1,120,318,308 

121.451.393 

3,637,397 

3.0 

1870 

61 

83,620,200 

27,804,539,406 

1.036.484.822 

90,274.479 

3,365,210 

3.7 

1871 

62 

84,420.200 

29,300,986,682 

1,209,721,029 

95,133,074 

3,927,666 

4.1 

1872 

61 

&4,420,200 

33,844,369,568 

1,428,582,707 

109,884,317 

4,638,256 

42 

1873 

S9 

83,370,200 

35,461,052,826 

1,474,508,025 

115,885,79* 

4,818,654 

4.1 

1874 

59 

81,635,200 

22,855,927,636 

1,286,753,176 

74,692,574 

4,205,076 

5.6 

1875 

59 

80,435,200 

25.061,237,902 

1,408,608,777 

81,899,470 

4,603,297 

56 

1876 

59 

81,731.200 

21,597,274.247 

1,295,042,029 

70,349,428 

4,218,378 

6.0 

1877 

58 

71.085,200 

23,289,243.701 

1,373,9%,302 

76,358,176 

4,504,906 

5.9 

1878 

S7 

63,611,500 

22.508.438.442 

1,307,843,857 

73,785,747 

4,274,000 

5.8 

1879 

S9 

60,800.200 

25.178,670,691 

1,400,111,063 

82,015,540 

4,560,622 

5.6 

1880 

S9 

60.475,200 

37,182.128,621 

1,516,538.631 

121,510,224 

4,956,(09 

4.1 

1881 

61 

61,162.700 

48,565,818,212 

1,776,018,162 

159,232,191 

5,823,010 

3.6 

1882 

62 

60,962,700 

46,552,846,161 

1,595,000,245 

151,637,935 

5,195,440 

3.4 

1883 

W 

61.162,700 

40,293,165,258 

1,568,983.1% 

132.543,307 

5,161,129 

3.9 

1884 

62 

60,412,700 

34,092,037.338 

1,524,930,994 

111,(M8,982 

4,%7,202 

45 

1885 

64 

58.612,700 

25.250.791.440 

1,295,355,252 

82,789,480 

4,247,069 

5.1 

1886 

64 

59.312,700 

33,374,682,216 

1,519,565,385 

10'»,067,589 

4,%5,900 

4.6 

1887 

65 

60,P62,700 

34,872,848.786 

1.569,626,325 

114.337,209 

5,146,316 

4.5 

1888 

64 

60,762.700 

30.863,686.609 

1,570,198,528 

101,192,415 

5,148,192 

M 

1889 

64 

60,762,700 

34,7%,46S,529 

1,757,637,473 

114,839.820 

5,800,784 

5.0 

1890 

65 

60,812.700 

37,660,686,572 

1,753.040,145 

123,074,139 

5,728,889 

4.7 

1891 

64 

60,772.700 

34,053,698,770 

1,584,635.500 

111,651,471 

5,195,526 

4.6 

1892 

65 

60,422,700 

36,279,905,236 

1,861.500,575 

118,561,782 

6,083,335 

5l 

1893 

6S 

60,922,700 

34,421.380,870 

1,6%,  207, 176 

113,978,082 

5,616,580 

49 

1894 

66 

61,622,700 

24.230.145,368 

1,585,241,634 

79,704,426 

5,214,611 

6.5 

1895 

67 

62,622,700 

28.264,379,126 

1,8%,S74,349 

92,670.095 

6,218,277 

6.71 

18% 

66 

60,622,700 

29.350,894,884 
n,102,864,012,832 

1,843,289,239 

%.232,442 

6.W3,571 

6.3 

Total 

t67,663,800 

151,306,942,821 

183,683,437 

t3.893.083 

4.65 

Clearing-house  transactions  of  the  assistant  treasurer  of  the  United 
States  at  New  York  for  the  year  ended  October  1.  189G: 

Exchanges  received  from  clearing-house $266,519,057 

Balances  received  from  clearing-house 869.078 

Total $267,388,135 

Exchanges  delivered  to  clear 'ng-house 99,592.915 

Balances  paid  to  clearing-house 11  $167,795,220 


*The  capital  is  for  various  dates,  the  amounts  at  a  uniform  date  in  each  year  not 
being  obtainable. 

t Yearly  average  for  forty- three  years. 

iTotals  for  forty-three  years. 

IIBalances  consisted  of  legal  tenders,  etc. 


HISTORY   OF  THE  NEW   YORK   CLEARING-HOUSE.  381 

Another  groat  service  rendered  l).v  the  assoeiation  is  the  issue  of 
clearing-house  certiticates  iu  times  of  monetary  stringency.  These 
serve  most  of  the  purposes  of  money.  Their  form  and  mode  of  issue 
have  been  already  described.  They  are  used  in  payment  of  balances, 
and,  indeed,  so  perfectly  serve  the  purpose  of  currency  that  a  former 
Secretary  of  the  Treasury  seriously  thought  of  imposing  the  ten  per 
cent,  tax  on  the  issuers,  as  may  be  done  on  all  persons  or  associations, 
except  national  banks,  that  issue  anything  which  serves  as  money  or 
as  a  substitute  therefor.  As  the  New  York  clearing-house  is  the 
largest  one  iu  this  country,  it  has  played  the  most  important  part  in 
issuing  at  different  times  these  certificates.  A  former  manager,  Mr. 
Camp,  has  thus  described  the  mode  and  effect  of  issuing  them: 

"Never  was  the  truth  of  the  motto  that  'in  union  there  is  strength' 
more  aptly  illustrated  than  iu  the  history  of  this  great  financial 
brotherhood.  Its  strength  lies  principally  in  the  plan  known  as  the  loan 
committee  system,  devised  originally  by  able  men,  members  of  the 
association,  and  improved  upon  from  time  to  time  by  experience,  until 
now  it  seems,  when  put  into  operation,  a  power  so  strong  as  to  at  once 
by  the  restoration  of  confidence  avert  the  disaster  of  a  financial  panic. 
This  plan  consists  in  the  issuance  to  banks  requiring  them  of  certificates 
of  the  loan  committee  based  upon  stocks,  bonds  or  bills  receivable,  ap- 
proved by  the  committee,  with  a  margin  of  not  less  than  25  per  cent., 
and  the  bank's  obligation  in  addition.  These  certificates,  bearing  in- 
terest, and  having  the  guarantee  of  the  association,  and  available  for 
the  settlement  of  balances  at  the  clearing-house,  make  a  perfectly  safe 
as  well  as  profitable  security  for  the  members  of  the  association,  at 
the  same  time  removing  pressure  upon  such  banks  as  need  only  tem- 
porary relief,  by  converting  their  collateral  and  bills  receivable  into 
an  equivalent  to  a  cash  asset. 

"They  have  invariably  accomplished  the  object  of  their  issue,  and 
iu  a  brief  period  have  always  been  retired  and  cancelled  without  loss. 
It  is  only  when  banks  are  actually  solvent  that  such  relief  is  extended. 
This  was  instanced  in  November,  1890,  when  three  banks  suddenly 
found  themselves  unable  to  meet  promptly,  as  required  by  the  asso- 
ciation, their  clearing-house  balances.  They  were  assisted  by  in- 
dividual banks  to  the  extent  required  for  that  day;  their  condition 
was  then  examined  by  the  committee,  and  two  of  them  being  found 
perfectly  solvent,  were  afforded  the  aid  requisite  for  a  continuance  of 
business;  but  the  condition  of  the  other,  the  North  River  Bank,  not 
being  satisfactory,  further  assistance  was  refused  it,  whereby  the 
public  was  assured  that  if  a  solvent  bank  should  suffer  temporary 
stringency  it  would  be  aided  and  protected  by  the  association,  while 
only  scant  courtesy  could  be  expected  for  one  whose  methods  and 
condition  should  be  proved  upon  examination  to  be  unsound. 

"To  demonstrate  how  effective  is  the  safeguard  which  this  system 
affords  as  a  means  of  mutual  protection,  it  is  only  necessary  to  call 


882  PRACTICAL  BANKING. 

attention,  to  an  attempt  recently  made  upon  the  securities  and  re- 
sources of  a  certain  bank  in  good  standing  and  credit  by  a  party  of 
unscrupulous  bank-wrecljers.  Every  business  man  in  New  York  must 
remember  with  what  marvelous  celerity  their  schemes  were  brought 
to  an  abrupt  termination  and  they  themselves  summoned  before  the 
bar  of  justice.  So  long  as  they  were  contented  to  devote  their  atten- 
tion to  outside  banks  their  plans  prospered,  but  almost  the  very  day 
they  presumed  to  trifle  with  a  bank  connected  with  the  clearing-house 
association  their  plans  were  frustrated.  Before  any  of  the  con- 
spirators were  aware  that  they  were  even  suspected,  the  committee 
was  sitting  in  special  session  and  probing  their  actions  to  the  bottom. 
"The  conservatism  of  the  New  York  clearing-house  is  especially 
manifested  in  the  fact  that  while  most  of  the  clearing-houses  in  the 
United  States  resort  to  transfers  of  balances  in  their  settlements,  this 
association  has  never,  except  in  the  matter  of  loan  certificates,  ac- 
cepted any  other  medium  than  legitimate  gold  coin  or  legal-tender 
money."* 


*For  the  remainder  of  his  account  of  the  New  York  clearing-house, 
see  North  Am.  Rev.  for  1892,  vol.  154,  p.  684.  See,  also,  an  account  by 
Kinahan  Cornwallis  in  International  Rev.  for  Sept. -Oct.,  1876. 


CLEARING-HOUSES  OUTSIDE   OF   NEW   YORK.  383 


XI. 


CLEARING-HOUSES    OUTSIDE    OP    NEAV    YORK. 


The  Boston  clearing-house  was  organized  three  years  after  that  of 
New  Yorlj;  its  clerks  and  porters,  as  well  as  the  manager,  give  bonds, 
and  the  daily  routine  is  substantially  the  same.  The  hour  for  clearing 
is  10  o'clocli  a.  m.  The  debtor  banks  are  required  to  pay  their  balances 
by  12:15  p.  ra.,  and  the  creditor  banks  receive  them  at  1:30  o'clock  p.  m. 
Thirty  minutes  are  allowed  for  the  proof  and  for  delivering  check 
tickets,  and  for  each  fifteen  minutes'  detention  beyond  that  time  two 
dollars  are  added  to  the  fine  incurred.  About  half  an  hour  is  required 
to  prepare  the  exchanges  for  the  clearing-house.  The  messengers  com- 
plete the  delivery  of  the  packages  at  the  clearing-house  in  about  five 
minutes.  They  receive  the  return  clearings  in  about  ten  or  fifteen 
minutes,  and  are  generally  back  at  their  respective  banks  by  fifteen 
or  twenty  minutes  past  10.  The  paying  teller  completes  the  examina- 
tion of  the  return  exchange  usually  by  11  o'clock,  and  then  delivers 
the  checks  and  vouchers  to  the  bookkeeper,  who  enters  them  on  his  books 
in  ink  of  a  different  color  from  that  used  in  charging  those  paid  over 
the  counter.  Usually  the  bank  sending  paper  to  the  clearing-house 
marks  its  number  on  the  back  of  each  check  or  voucher  in  blue  ink, 
but  the  practice  is  not  uniform.  Although  the  check  tickets  are  usually 
prepared  at  the  bank  and  delivered  by  the  messengers,  this  is  not 
obligatory.  It  is  sufficient  if  the  check  tickets  are  all  delivered  before 
10:30  o'clock,  for  failure  to  do  which  a  fine  of  one  dollar  is  imposed. 
No  failure  has  ever  occurred  among  the  banks  connected  with  the 
Boston  clearing-house,  though  the  Mechanics'  Bank  (No.  30)  never  came 
in,  and  the  Metropolis  (No.  38)  discontinued  business  many  years  ago. 
Provision  is  made  in  the  constitution  for  making  one  of  the  associated 
banks  a  depository  of  coin  against  which  certificates  may  be  issued. 
But  this  provision  is  at  present  dormant.  United  States  gold  certificates 
being  used  instead.  In  case  of  default  by  any  bank  in  paying  its  bal- 
ances at  the  clearing-house,  the  constitution,  in  addition  to  provisions 
similar  to  those  of  the  New  York  clearing-house,  provides  that  any 
bank  responding  to  the  manager's  requisition  for  the  deficiency  may 
have  its  exchanges  with  the  defaulting  bank  canceled,  and  be  re- 
stored to  the  position  in  which  it  stood  before  the  exchange  was  made. 
Weekly  statements  are  required  from  the  banks,  as  in  New  York. 


384 


PRACTICAL  BANKING. 


At  Philadelphia  there  are  two  clearings  daily.  The  first,  and 
principal  clearing,  is  at  8:30  o'cloclv  a.  m.  The  balances  of  this  clearing 
are  paid  in  legal-tender  notes  or  United  States  certificates,  between 
the  hours  of  11  and  12  o'clock.  A  second,  or  "runners'  "  exchange,  is 
held  at  11:30,  for  the  settlement  of  the  items  formerly  taken  to  the 
different  banks  by  the  runners,  namely,  the  notes  and  checks  received 
by  the  morning  mail.  The  balances  of  this  exchange  are  paid  by  due 
bill,  which  goes  through  the  next  morning's  exchanges.  The  dealing 
methods  are  similar  to  those  at  New  York.  Weekly  bank  statements 
ai"e  also  published. 

At  Chicago  the  hour  for  clearing  is  11  o'clock  daily.  Balances 
must  be  paid  by  the  debtor  banks  between  the  hours  of  12  and  12:30, 
and  the  creditor  banks  receive  them  between  12:30  and  1:15  o'clock. 
Balances  are,  by  the  rules  of  the  clearing-house,  payable  in  gold  coin, 
legal  tenders,  National  bank  notes.  United  States  and  clearing-house 
certificates.  It  is  customary,  however,  for  the  banks  to  save  the  hand- 
ling of  actual  cash  to  a  greater  or  less  extent  by  the  following  ex- 
pedient: A  debtor  bank  sells  to  some  creditor  bank  New  York  or 
Boston  exchange,  and  I'eceives  from  the  latter  a  check  or  order  on 
the  clearing-house,  the  form  of  which  is  printed  on  green  paper,  and 
is  as  follows: 


No Chicaoc 

W.  S.  Smith.  Manager 

Chicago  Clearing-house. 
Pay 

and  deduct  from  balance  due  us  this  day. 
I 


1899. 


or  order 
.  Dollars 


.Cashier. 


The  debtor  bank  delivers  this  voucher  at  the  clearing-house  in 
settlement  of  the  amount  which  it  represents,  and  it  is  available  to 
the  clearing-house  in  settling  with  the  creditor  bank  without  hand- 
ling any  cash.  At  St.  Paul  a  similar  tisage  prevails,  the  check  or  order 
on  the  clearing-house  being  printed  on  light  yellow  paper. 

At  Chicago  all  checks  and  vouchers  exchanged  at  the  clearing-house 
are  held  in  trust  only  by  the  member  receiving  the  same  until  returned, 
or  the  amount  thereof  paid.  In  case  of  failure  on  the  part  of  any 
bank  to  paj"  its  balances  at  the  proper  hour,  it  is  to  return  such  checks 
cr  vouchers,  without  mutilation,  to  the  clearing-house  before  1  o'clock 
p.  m.,  and  it  is  to  receive  back  the  vouchers  it  sent.  Elaborate  pro- 
visions are  made  for  the  protection  of  the  associated  banks  in  such 
cases.  The  work  of  clearing,  in  its  various  stages,  occupies  about  two 
hours.  Thirty  minutes  are  allowed  for  the  proof.  The  paper  ex- 
changed is  stamped  "Paid  through  the  Chicago' clearing-house  to"  (name 


CLEARING-HOUSES  OXTTSIDE   OF   NEW   YORK.  385 

of  member  clearing  same  to  be  here  inserted),  with  the  date,  in  lieu  of 
written  endorsements,  and  the  bank  using  such  stamp  thereby  makes 
itself  responsible  for  all  items  so  stamped  bj'  it,  and  for  all  informalities 
of  endorsements  thereon.  The  business  hours  of  the  different  members 
must  be  uniform,  and  are  regulated  by  the  association.  Each  mem- 
ber of  the  association  is  required  to  furnish  to  the  manager,  as  often 
as  five  times  yearly,  and  at  such  other  times  as  may  be  required  by 
the  deariug-house  committee,  a  sworn  statement  of  its  condition,  in 
the  form  and  manner  prescribed  for  the  statements  of  national  banks, 
such  statements  to  be  open  to  the  inspection  of  the  members,  but  to 
be  otherwise  confidential.  The  scale  of  fines  shows  some  peculiarities, 
among  which  may  be  mentioned  those  for  being  late  at  the  morning 
exchanges.  For  the  first  five  minutes,  or  part  thereof,  late,  the  fine  is 
$3;  for  the  second  five  minutes,  or  part  thereof.  .$10.  and  for  being 
over  ten  minutes  late,  .$25.  Creditor  banks  are  also  fined  $3  in  case  of 
failure  to  take  away  their  balances  bj*  1|2:45  p.  m.  All  fines  are  col- 
lected by  the  manager  at  once.  The  manager  may  require  from  mem- 
bers the  signatures  of  such  persons  are  are  authorized  to  receipt  for 
balances.  The  expenses  of  the  establishment  are  about  $8,000  per 
annum,  assessed  upon  the  banks  in  a  manner  similar  to  that  at  New- 
York. 

At  St.  Louis  the  hour  for  making  the  exchanges  is  10  o'clock  a.  m. 
Each  clerk  must  report  the  debits  against  his  bank  within  twelve 
minutes  after  commencing;  for  failure  to  do  which  the  bank  is  fined 
two  dollars,  with  two  dollars  more  for  every  five  minutes'  additional  delay. 
The  time  required  for  completing  the  morning  settlement  varies  from 
fifteen  to  thirtj-  minutes.  At  11  o'clock  the  manager  issues  his  cer- 
tificates of  indebtedness  by  the  debtor  on  the  creditor  members,  the 
form  of  which  has  been  already  given,  each  creditor  bank  receiving,  on 
an  average,  two  certificates.  The  payment  of  balances,  which  are  not 
handled  at  all  by  the  clearing-house,  but  are  settled  wholly  between 
the  banks,  occupies  from  one  to  one  and  one-half  hours.  As  at  Chicago, 
the  exchange  and  delivery  of  checks  at  the  clearing-house  is  in  trust 
only  until  the  debit  balances  are  paid,  and  such  checks  must  be  re- 
turned unmutilated  by  any  defaulting  member.  All  checks  sent  to  the 
clearing-house  must,  in  lieu  of  written  endorsement,  bear  the  impress 
of  a  uniform  stamp,  showing  the  name  and  number  of  the  bank 
sending  it,  and  the  date,  with  the  words,  "St.  Louis  clearing-house." 
The  by-laws  define  proper  clearing  matter  as  follows: 

1.  All  checks  or  drafts  upon,  or  certificates  of  deposits,  demand  or 
matured,  of  any  member  of  the  clearing-house  or  any  bank  clearing 
through  any  member. 

2.  Any  other  matter  specially  agreed  to  by  any  member,  or  bank 
clearing  tlirough  it.  until  notice  is  given  to  the  contrary. 

3.  Mercantile  or  otlier  paper  payable  at  any  bank  shall  not  be 
cleared  against  such  bank  unless  authorized  by  the  same. 


386  PRACTICAL  BANKING. 

4,  All  unstamped  checks  will  be  considered  improper  matter  for 
clearing. 

5.  Any  bank  clearing  paper  not  proper,  as  aforesaid,  shall  be  fined 
for  disregard  of  instructions. 

Clerks  duly  authorized  may  return  at  the  clearing-house  matter  not 
authorized  according  to  the  foregoing  to  the  clerk  of  the  bank  clearing 
it,  who  must  receive  and  charge  his  bank  with  it  in  his  debit  list.  The 
initiation  fee  is  only  $25,  and  the  expenses,  amounting  to  about  .$G,000. 
are  paid  by  the  members  in  proportion  to  their  clearings.  To  be  eligible 
as  members,  banks  must  have  a  paid-up  capital  of  $150,000.  Instead 
of  a  "settling  clerk's  statement"  all  on  one  blank,  each  clerk  has  two 
statements.  One  called  a  "Credit  List,"  begins  "St.  Louis  clearing- 
house  1898 from 

Bank  No....,"  and  contains  the  exchange  brought  by  the  bank.  It 
corresponds  with  the  debit  column  in  the  "settling  clerk's  statement," 
as  already  given.    The  other  statement  is  called  the  "Debit  List,"  and 

begins  "St.  Louis  clearing-house 1898  on 

Bank  No "    It  corresponds  with  the  credit  column  in  the  settling 

clerk's  statement.  The  manager  compiles  periodical  statements  show- 
ing the  condition  of  the  banks  from  returns  made  by  them.  While  the 
method  of  paying  balances  employed  at  St.  Louis  saves  one  handling 
of  the  funds  so  paid,  it  must  usually  happen  that  another  great  economy 
effected  by  the  clearing-house  is  lost,  namely,  the  settlement  of  the 
whole  debtor  or  creditor  balance  in  one  item.  It  would  be  a  very  re- 
markable circumstance  if  the  balance  due  from  any  debtor  bank  should 
be  exactly  the  same  as  the  balance  due  to  some  creditor  bank.  When- 
ever it  is  otherwise,  the  demand  due  to  the  one,  or  from  the  other, 
must  be  divided  into  two  or  more  payments.  The  relative  advantage 
of  one  or  the  other  method  of  paying  balances  must,  however,  be 
determined  by  the  circumstances  of  each  clearing-house.  What  might 
be  most  convenient  under  certain  conditions,  might  be  quite  incon 
venient  or  impracticable  under  different  conditions.  The  manager  and 
a  porter  have  charge  of  the  clearing-house. 

The  regulations  of  the  San  Francisco  clearing-house  are  very  similar 
to  those  at  New  Yoi'k.  As  at  Philadelphia,  there  are  two  clearings 
daily,  these  being  the  only  clearing-houses  in  the  country  having  more 
than  one.  The  hours  of  clearing  are  for  ordinary  days  10  o'clock  a.  m.. 
and  2  o'clock  p.  m.,  precisely.  At  2:30  o'clock  p.  m.  the  debtor  banks 
pay  their  balances  to  the  clearing-house,  and  at  3  o'clock  p.  m.  the 
creditor  banks  receive  their  balances  at  the  same  place.  On  Saturdays 
the  exchanges  occur  at  11  and  11:30  o'clock,  the  settlements  being  made 
at  12.  About  ten  minutes  are  occupied  in  getting  the  proof,  about  thirty 
minutes  in  receiving  debit  balances,  and  about  twenty  minutes  in  pay- 
ing credit  balances.  United  States  certificates  began  to  be  used  in 
paying  balances  March  5,  1883,  and  clearing-house  certificates 
June  5,  1883.    Formerly  the  gold  balances  were  paid  in  gold  coin,  the 


CLEARING-HOUSES   OUTSIDE  OF  NEW   YORK.  387 

silver  in  silver  coin,  and  tlie  currency  in  currency.  This  was  the  case 
before  the  resumption  of  specie  payments.  There  are  no  tines  or  pen- 
alties other  than  suspension  or  expulsion.  If  a  l)ank  defaults  in  the 
payment  of  its  balances,  the  amount  of  that  balance  is  furnished  to 
the  manager  in  memorandum  checlcs  bj'  the  banks  to  which  the  default- 
ing bank  is  a  debtor,  in  proportion  to  the  amount  due  each,  and  the 
claims  of  the  banks  which  have  balances  against  the  defaulting  bank, 
and  the  claims  of  the  defaulting  bank  against  banks  which  may,  in 
that  exchange,  have  exchanged  with  it,  shall  be  placed  in  precisely  the 
same  position  as  before  the  exchanges  commenced.  New  members 
must  pay  an  initiation  fee  of  $500,  as  compared  with  .$200  for  the 
original  members.  To  provide  for  the  annual  expenses,  each  bank  also 
pays  an  annual  subscription  of  $150,  any  balance  required  being  made 
up  by  a  pro  rata  assessment  according  to  the  amounts  cleared  by  each 
bank.  The  work  at  the  clearing-house  is  in  charge  of  the  manager  and 
one  clerk. 

At  Baltimore  the  banks  make  their  exchanges  daily  at  the  National 
Union  Bank  of  Maryland,  which  is  the  depository  of  the  associated 
banks.  The  hour  for  clearing  is  8:45  o'clock  a.  m.  The  balances  are 
paJd  by  the  debtor  banks  at  10  o'clock,  either  in  legal-tender  notes  or 
certificates,  and  are  received  by  the  creditor  banks  at  noon. 

At  New  Orleans  the  hour  for  clearing  is  9  o'clock  a.  m.  At  11:30 
o'clock  a.  m.,  or  as  soon  thereafter  as  the  amounts  can  be  made  up 
and  proved,  the  creditor  banks  receive  from  the  manager  at  the  clearing- 
house in  settlement  of  their  balances  checks  on  the  debtor  banks, 
which  checks  are  not  transferable,  and  are  to  be  in  no  case  sent 
through  the  exchanges.  The  liability  of  the  associated  banks  on  such 
checks  ceases  at  2  o'clock  p.  m.  on  the  day  of  their  issue.  Any  bank 
unable  to  pay  its  balances  is  required  to  notify  the  manager  and 
other  members  of  the  association,  and  if  any  bank  falls  to  respond  to 
the  manager's  checks  before  1  o'clock  p.  m.,  such  checks  are  to  be 
returned  to  the  clearing-house.  The  manager  at  once  notifies  the  other 
associated  banks,  and  strikes  from  the  lists  the  exchanges  of  the  de- 
faulting member,  which  Is  required  to  hold  in  trust  for  the  other  banks 
the  checks  received  from  them  until  called  for  by  them.  The 
manager  then  makes  a  supplemental  adjustment  between  the  other 
banks,  without  recalling  the  checks  already  Issued  by  him  upon  the 
responding  banks.  He  charges  back  to  them  the  checks  brought  by 
them  against  the  defaulting  bank,  and  credits  back  to  them,  first,  the 
checks  brought  against  them  by  the  defaulting  bank,  and,  second,  the 
amount  of  the  manager's  checks  issued  to  them  upon  the  defaulting 
bank.  He  then  Issues  supplemental  manager's  chocks  for  the  settle- 
ment of  the  balances  which  result  from  these  debits  and  credits.  The 
defaulting  bank  ceases  to  be  a  member  of  the  association,  and  can 
only  be  readmitted  by  a  three-fourths'  vote  of  the  association  as  in  the 
case  of  new  members.    Each  member  of  the  associ.ition  is  required 


388  PRACTICAL  BANKING. 

to  keep  on  hand  in  coin.  United  States  legal  tender  and  National  bank 
notes  and  sight  exchange  on  New  York,  25  per  cent,  of  its  net  liabilities 
subject  to  check  as  they  appear  each  morning  after  the  exchanges 
and  20  per  cent,  of  such  liabilities  in  coin,  legal  tenders,  and  national 
bank  notes.  Every  member  of  the  association  is  required  to  furnish  to 
the  association  every  Saturday  morning  a  report  of  its  average  con- 
dition for  the  week  ending  Friday  morning,,  sliowing,  first,  specie 
(coin);  second.  United  States  legal  tenders  and  national  bank  notes; 
third,  cash  items;  fourth,  sight  exchange  on  New  York;  fifth,  foreign 
exchange;  sixth,  due  from  distant  banks  and  bankers;  seventh,  loans 
and  discounts;  eighth,  other  cash  assets;  ninth,  circulation;  tenth,  de- 
posits (net,  after  exclianges);  eleventh,  due  distant  banks  and  bankers; 
subject  to  check;  twelfth,  other  liabilities  to  banks  and  bankers; 
thirteenth,  other  cash  liabilities.  Members  are  required  to  pay  an  ad- 
mission fee,  and  the  expenses  (except  printing,  which  is  shared 
equally)  are  apportioned  according  to  the  average  amount  of  the  clear- 
ings. No  exchanges  are  made  with  members  before  a  quarter  to  10 
o'clock  a.  m.,  except  through  the  clearing-house.  The  exchanges  are  cle 
livered  at  the  clearing-house  in  sealed  envelopes.  The  clerks,  as  well  as 
the  manager,  must  give  bonds  with  sufficient  sureties.  Minute  rules 
prescribe  the  manner  in  which  bundles  of  currency  must  be  assorted, 
wrapped  up  and  sealed  for  greater  security  when  designed  to  be  used 
in  paying  balances. 

At  Cincinnati  the  routine  is  substantially  the  same  as  at  St.  Louis, 
the  former  having  served  as  the  model  for  the  St.  Louis.  Louisville  and 
Columbus  clearing-houses.  At  all  of  these,  except  St.  Louis  (as  form- 
erly at  this,  also),  the  official  statements  of  clearings  and  balances 
represent  (or  lately  did)  the  total  of  both  sides  of  the  clearing-house 
proof,  and  must  be  divided  by  two  to  get  the  true  clearings.  The 
same  was  formerly  the  case  at  Kansas  City,  Milwaukee  and  St.  Joseph. 
The  hour  for  making  the  exchanges  at  Cincinnati  is  2  o'clock  p.  m. 
At  2:30  the  manager,  in  settlement  of  balances,  issues  his  checks  or 
warrants  upon  the  debtor  members  to  the  creditor  members,  which 
must  be  promptly  paid  to  the  satisfaction  of  the  latter.  If  payment  is 
not  made  before  4  o'clock  on  the  same  day  the  clearing-house  must 
be  notified  immediately,  otherwise  the  other  members  are  free  from 
responsibility  on  such  checks.  In  case  of  default  the  other  members 
must  make  up  the  deficiency  in  proportion  to  the  checks  they  have 
cleared  on  the  defaulting  member  on  that  day,  and  the  latter  is  re- 
quired to  return  the  checks  it  has  received  unmutilated,  and  in  case  it 
refuses  or  cancels  such  cheeks,  the  same  are  treated  as  if  returned. 

At  Pittsburg  the  hour  for  clearing  is  0  o'clock  a.  m.,  and  the 
average  time  occupied  is  twelve  minutes.  The  checlis  to  be  exchanged 
are  put  up  in  large,  unsealed  envelopes.  The  debtor  banks  pay  their 
l)alauces  in  cash,  inclosed  in  sealed  envelopes,  between  10:30  and  11 
o'clock  a.   in.,  and  the  creditor  banks  receive  them  between  11  and 


CLKARINO-HOUSES  OUTSIDK  OF  NEW  YORK.  389 

11:30  o'clock  a.  m.,  a  receipt  heinf:  given  in  each  case.  All  checks  sent 
to  the  clearing-house  are  marked  with  the  stamp  of  the  bank  sending 
them.  The  manager  compiles  periodical  statements  showing  the  con- 
dition of  the  associated  banks  and  of  the  banks  which  clear  through 
them. 

At  Providence,  where  there  is  no  regularly  organized  clearing-house, 
nineteen  banks  clear  through  the  Merchants'  National  Bank,  and  fifteen 
through  the  National  Bank  of  North  America.  The  routine,  as  stated 
by  Mr.  John  W.  Vernon,  cashier  of  the  Merchants'  National  Bank,  is 
as  follows:  Each  bank,  instead  of  assorting  the  checks  and  other 
clearing  matter  it  holds,  and  depositing  the  packages  made  up  against 
every  other  bank,  deposits  its  exchange  in  bulk  with  its  clearing  bank, 
and  the  latter  assorts  the  checks  and  notes,  making  up  new  packages 
against  each  bank.  When  the  two  clearing  banks  have  finished  as- 
sorting the  checks  and  other  items  and  making  up  the  packages,  they 
exchange  with  each  other,  settling  the  balance  m  New  York  or  Boston 
funds.  The  time  required  for  assorting  and  exchanging  the  checks  and 
notes  is  such  that,  although  the  exchange  is  to  be  deposited  at  10:30 
o'clock  a.  m.,  the  clearing  banks  are  not  ready  to  settle  balances  \intil 
about  1  o'clock.  Between  1  o'clock  and  3  p.  m.  the  clearing  banks  pay 
the  creditor  banks,  and  are  paid  by  the  debtor  banks  in  cashiers'  checks 
on  New  York  or  Boston  banks,  at  the  option  of  the  payee.  The  banks 
clearing  through  the  National  Bank  of  North  America  stamp  all  the 
checks  deposited  by  them  with  a  circle  containing  the  clearing  number 
of  the  bank.  Each  bank  clearing  through  the  Merchants'  National 
Bank  stamps  the  checks  it  deposits  with  a  triangle  containing  its  clear- 
ing number.  National  bank  notes  as  well  as  checks  are  included  in  the 
exchanges. 

At  Milwaukee  the  hour  for  clearing  is  10:.30  o'clock  a.  m.  The 
various  stages  of  the  work  occupy  about  an  hour.  Debtor  banks  pay 
their  balances  to  the  clearing-house  at  2  o'clock  p.  m.,  either  in 
lawful  money,  national  bank  notes,  or  such  clearing-house  certificates 
as  may  be  agreed  on  from  time  to  time.  At  2:15  o'clock  p.  m.  the 
creditor  banks  receive  their  balances.  In  case  a  bank  defaults  in  the 
payment  of  its  balances  the  other  banks  are  to  make  up  the  deficiency 
on  the  manager's  requisition  in  proportion  to  their  balances  against 
the  defaulting  member,  and  until  the  settlement  is  completed  the  ex- 
change is  in  trust  only,  and  the  vouchers  remain  the  property  of  the 
members  presenting  them  and  are  to  be  returned  if  required.  Checks 
not  good  are  to  be  returned  before  12:30  o'clock  to  the  member  send- 
ing the  same,  which  is  to  reimburse  the  holder  by  1  o'clock.  The  ex- 
penses (about  .$850)  are  borne  by  assessment  to  be  fixed  by  the  clearing- 
house committee,  and  to  be  paid  quarterly  in  advance.  The  members 
are  required  to  keep  uniform  hours,  and  are  not  allowed  to  receive  on 
deposit  checks  upon  any  banks  or  bankers  in  Milwaukee  which  are 
not  members,  unless  such  banks  or  bankers  clear  through  some  mem- 


300  PRACTICAL  BANKlNCt. 

ber.  The  banks  stamp  checks  sent  to  the  clearing-house.  Any  mem- 
ber may  be  subjected  to  examination,  or  required  to  furnish  security, 
upon  representation  that  its  capital  is  seriously  impaired. 

At  Kansas  City  the  hour  for  clearing  is  12:30  o'clock  p.  m.,  and  the 
manager's  certificates  are  issued  in  settlement  of  balances  as  soon  as 
the  proof  is  made.  They  are,  in  form,  identical  with  that  used  at  St. 
Louis,  except  that  recourse  may  be  had  on  the  other  members  up  to 
2:30  instead  of  2  p.  m.  The  constitution  is  almost  word  for  word  iden- 
tical with  that  of  St.  Louis,  and  checks  cleared  are  stamped  in  the 
same  manner.  The  hours  of  the  members  are  to  be  uniform,  as  regu- 
lated by  unanimous  vote.  Proper  matter  for  clearing,  according  to  the 
bylaws,  consists  of  checks,  drafts,  certificates  of  deposit,  demand  or 
matured,  and  any  other  matter  specially  agreed  upon,  and  any  bank 
clearing  paper  not  proper  is  subject  to  a  fine.  The  manager  makes 
monthly  or  quarterly  statements,  showing  the  clearings  and  balances  of 
each  member  for  the  month  or  quarter,  the  amount  of  fines  imposed 
upon  each  member,  and  the  causes  thereof.  Only  national  and  state 
banks  having  a  capital  of  $50,000  or  more  are  eligible  as  members. 

The  Louisville  clearing-house  is  modeled  mainly  after  that  of  Cin- 
cinnati. Checks  only  are  cleared;  balances  are  settled  by  manager's 
check,  which  must  be  collected  on  the  same  day,  or  the  holder  loses 
recourse. 

The  Detroit  clearing-house  is  conducted  on  principles  similar  to 
those  of  the  Chicago  association.  The  clerks,  as  well  as  the  manager, 
furnish  bonds  with  sufficient  sureties.  The  hour  for  clearing  is  12:15 
o'clock  p.  m.  A  fine  of  one  dollar  per  minute  is  imposed  for  tardiness, 
and  the  clearings  are  in  no  case  delayed  moi'e  than  five  minutes  by 
the  absence  of  a  member.  Fifteen  minutes  are  allowed  for  the  proof, 
but  the  average  time  occupied  is  only  ten  minutes.  Fines  are  doubled  in 
thirty  minutes,  and  quadrupled  in  one  houi*.  The  debtor  members  pay 
their  balances  to  the  manager  between  1  and  1:30  p.  m.  in  coin,  legal 
tenders,  national  bank  notes,  clearing-house  certificates  provided  for 
by  the  rules  of  the  association,  or  New  York  exchange.  At  last  ac- 
counts the  practice,  since  the  association  was  formed,  has  been  to  pay 
balances  in  New  York  exchange  only.  At  1:30  p.  m.  the  creditor  banks 
receive  their  balances.  The  exchange  is  in  trust,  and  vouchers  remain 
the  property  of  the  member  presenting  them  until  balances  are  paid, 
and  in  case  of  default  must  be  returned  to  the  clearing-house  unmuti- 
lated  by  1 :30  p.  m.  The  defaulting  bank  is  also  entitled  to  receive  back 
the  vouchers  it  has  presented,  and  the  exchanges  with  it  are  canceled. 
If  the  New  York  exchange  given  in  settlement  of  balances  is  dishon- 
ored, the  deficiency  is  assessed  upon  the  banks  having  debit  balances 
against  the  defaulting  member  in  proportion  to  such  balances.  To  pro- 
vide for  expenses  the  members  each  pay  ipoO,  and  an  equal  share  to  the 
cost  of  printing.  All  beyond  this  is  provided  by  an  assessment  on  the 
banks  in  proportion  to  their  exchanges  sent  to  the  clearing-house.    The 


CLEARING-HOUSES   OUTSIDE  OF  NEW   YORK.  891 

paper  cleared  consists  of  checks,  drafts  and  certified  paper.  Some  of 
the  members  attix  some  distiuguishinj;  mark  to  paper  cleared,  but  this 
is  not  required  by  the  rules  of  the  association. 

At  Cleveland  the  clearings  are  made  at  1  o'clock  p.  m.  Balances 
of  more  than  $1,000  are  settled  by  New  York  exchange.  When  balances 
are  under  $1,000,  a  balance  check  is  given  which  is  put  through  the 
clearings  of  the  next  day.  Consequently,  no  cash  is  handled  in  paying 
balances.    Checks  cleared  are  marked  with  a  clearing-house  stamp. 

At  St.  Paul  the  regulations  are  modeled  after  those  at  Chicago  and 
Milwaukee.  The  clearings  are  made  at  10:30  o'clock  a.  m.,  and  the 
average  time  occupied  is  seven  minutes.  Checks  only  are  cleared.  A 
clerk  of  the  First  National  Bank  of  St.  Paul,  where  the  clearings  take 
place,  acts  as  manager.  The  "paid"  stamp  of  the  sending  bank  is  the 
only  distinguishing  mark  affixed  to  checks  passing  through  the  clearing- 
house. Balances  are  payable  in  coin,  national  bank  notes,  legal  tenders, 
and  gold  or  silver  certificates.  No  silver  dollars  are  ever  offered  by 
mutual  understanding. 

At  Indianapolis  the  manager  receives  at  the  room  of  the  association 
from  members,  between  12  o'clock  noon  and  12:15  p.  m.,  the  checks, 
drafts  and  notes  to  be  exchanged,  and  immediately  afterwards  collects 
from  or  pays  to  each  bank  at  its  place  of  business  the  balances  re- 
sulting from  such  exchange.  No  member  is  allowed  to  receive  in  pay- 
ment a  check  on  any  Indianapolis  bank  not  a  member,  and  no  paper 
payable  at  any  bank  not  a  member  is  allowed  to  pass  through  the 
clearing-house.  All  checks  received  by  members  after  1  o'clock  must 
be  certified.  All  paper  cleared  must  bear  the  endorsement  of  the 
sending  bank,  either  in  writing  or  by  stamp,  as  an  acknowledgment  of 
payment  and  not  as  a  guarantee,  except  as  to  the  genuineness  of  other 
endorsements.  The  maker  of  a  check  dishonored  for  want  of  funds  is 
discredited,  the  members  are  all  notified,  and  no  uncertified  check  of 
such  a  person  is  allowed  to  pass  through  the  clearing-house  until  his 
credit  is  restored  by  vote  of  the  association.  All  notes  and  acceptances 
must  be  certified  before  passing  through  the  clearing-house.  The 
manager  takes  up  the  checks  delivered  to  and  by  any  defaulting  mem- 
ber, and  returns  them.  Expenses,  except  as  provided  for  by  fines,  are 
paid  by  the  banks  in  proportion  to  their  capital  and  deposits.  The  man- 
ager is  to  be  a  notary  and  has  the  privilege  of  protesting  such  paper 
as  the  members  have  for  protest,  his  fees  being  his  only  compensation. 

At  Hartford  the  business  of  clearing  is  done  by  the  members  in 
turn,  each  for  one  month  at  a  time,  some  oflicer  of  the  clearing  bank 
being  managex*.  The  hour  for  clearing  is  10  o'clock  and  five  minutes, 
and  the  time  occupied  averages  fifteen  minutes.  The  debtor  banks  pay 
their  balances  to  the  clearing-house  at  or  before  11:.30  a.  m.  in  checks 
on  New  York,  except  balances  of  less  than  $100,  which  may  be  paid  in 
currency.  The  creditor  banks  receive  their  balances  at  12  m.  The 
matter  cleared  includes  notes,  drafts  and  checks,  also  bank  notes  of  the 


392  PRACTICAL  BANKING. 

members  to  a  very  limited  extent.  All  paper  cleared  must  bear  the 
written  or  stamped  endorsement  of  the  bank  sending  it.  In  ease  of  de- 
fault the  other  banks  make  up  the  deficiency  as  at  New  York  and 
Boston.  All  checks  not  good  must  be  returned  to  the  sending  bank 
by  12  o'clock  noon. 

At  Minneapolis  the  clearings  occur  at  11  o'clock  a.  m.  The  con- 
stitution is  not  printed,  but  the  routine  appears  to  be  in  general  similar 
to  that  at  New  York. 

At  New  Haven,  as  at  Hartford,  the  banks  take  turns,  each  bank 
acting  as  the  clearing-house  for  three  months.  The  exchanges  are 
made  at  9:15  a.  m.,  and  include  checks,  acceptances,  notes  certified  the 
day  before,  and  in  fact  everything  in  the  form  of  an  order  on  any 
member.    Balances  are  to  be  paid  by  noon  in  drafts  on  New  York. 

At  Memphis  the  exchanges  occur  at  9  o'clock  a.  m..  and  the  time 
consumed  by  the  manager  in  the  adjustment  of  balances  is  about  thirty 
minutes.  In  settlement  of  balances  the  manager  draws  his  check  on 
the  debtor  in  favor  of  the  creditor  members  in  the  following  form: 


Memphis  Clbaring-housb, 

Memphis,  Tenn  . . 

1899. 

MM. 

Pay  to 

G. 

in 

settlement    of    balances    this 

morning 

Six   thousand 

five  hundred 

and 

fifty  Ai  dollars. 

$6,SS0rt'b. 

Adjuster. 

Instead  of  writing  the  name  of  the  payee  in  full,  the  initial  letter 
or  letters  simply  are  used.  The  amount  of  checks  brought  by  each 
bank  is  entered  on  a  credit  slip,  and  the  amount  taken  away  on  a 
debit  slip.  This  latter  also  contains  additional  rulings  to  show  the 
balance  due  to  or  from  the  bank,  and  against  the  initials  of  each  bank 
is  written  the  amount  of  checks  drawn  upon  it  or  in  its  favor  to  settle 
this  balance.  Balances  must  be  settled  in  current  funds.  Checks  only 
are  cleared,  and  they  are  delivered  in  sealed  envelopes  designated  on  the 
outside  as  follows: 


Memphis  Clbaring- 

HOUSE, 

July  I 

'»99- 

u. 

$10,000  from  Commerce. 

That  is  Union  and  Planters'  Bank  $10,000,  from  the  Bank  of 
Commerce. 

At  Peoria  the  clearings  are  made  at  11:30  o'clock  a.  m.,  and 
occupy  about  half  an  hour.    The  clearing  matter  consists  of    checks. 


CLRA.RINGS   OUTSIDE   OF  NEW   YORK.  303 

Members  are  to  report  upon  balances  resulting  from  the  exchanges 
before  1  o'clock,  after  which  hour  the  balance  becomes  the  debt  of  the 
bank.  Balances  must  be  paid  by  the  debtor  banks  at  the  counters  of 
the  creditor  banks  before  3  o'clock,  in  currency,  unless  arrangements 
have  been  made  before  that  hour  for  payment  in  exchange  on  other 
points.    Checks  not  good  must  be  returned  before  1:30  p.  m. 

At  Portland  the  six  national  banks,  without  being  formally  organ- 
ized as  a  clearing-house,  settle  daily  at  10  o'clock  a.  m.  The  time  occu- 
pied is  about  tifteen  minutes.  Portland  checks  only  are  included  in  the 
clearing.  Balances  are  paid  in  legal-tender  notes,  or  checks  on  Boston 
or  New  York. 

The  Worcester  and  Lowell  clearing-houses  are  organized  on  the 
same  plan.  Each  bank  belonging  to  the  association  is  required  to  make 
a  deposit  fixed  by  vote  of  the  association  with  the  clearing-house  com- 
mittee as  its  proportion  of  a  clearing  fund.  This  fund  is  deposited 
with  one  of  the  banks  selected  as  the  clearing  bank,  free  of  interest, 
as  a  compensation  for  services  and  expenses.  The  clearing  bank  is 
changed  each  year  at  Lowell.  The  cashier  of  the  clearing  bank  is,  ex 
officio,  the  manager  of  the  clearing-house.  No  bank  is  allowed  to  make 
the  clearings  of  a  bank  that  is  not  a  member.  At  Worcester  the  hour 
for  making  the  exchanges  is  12  o'clock  noon,  and  the  time  occupied  iS' 
about  fifteen  minutes.  At  Lowell  the  hour  of  clearing  is  11  o'clock,  and 
the  time  occupied  is  from  seven  to  ten  minutes.  The  clearing  matter 
of  both  consists  of  checks,  drafts  and  notes.  At  Worcester  paper 
cleared  is  marked  as  follows:  "Pay  only  through  Worcester  clearing- 
house to "    At   Lowell   no   distinguishing   mark    is   affixed.    At 

the  latter  balances  are  paid  by  drafts  on  New  York  or  Boston;  at 
Worcester  by  checks  on  Boston. 

At  Springfield  the  exchanges  occur  at  11  o'clock  at  the  Chicopee 
National  Bank,  and  occupy  about  twenty  minutes.  One  clerk  for  each 
bank  performs  the  duties  of  messenger  and  settling  clerk.  All  kinds  of 
paper  are  cleared,  each  item  being  stamped  with  the  stamp  of  the 
sending  bank.  Balances  of  less  than  !P200  are  paid  in  currency;  if  more 
than  that  by  New  Y'ork  or  Boston  drafts. 

At  Columbus,  Ohio,  the  representatives  of  the  banks  clear  at  the 
Board  of  Trade  rooms  in  City  Hall  at  2  o'clock  p.  m.  The  exchanges 
occupy  ten  minutes,  the  adjustments  twenty.  Clearing  matter  consists 
of  checks  to  which  no  distinguishing  mark  is  affixed.  Balances  are 
paid  bj'  manager's  checks  on  the  debtor  banks. 

At  Norfolk  the  banks  select  one  of  their  number  to  be  the  clearing 
bank  for  one  year,  and  the  cashier  of  that  bank  is  ex  officio  man- 
ager of  the  clearing-house.  The  hour  for  making  the  exchanges  is  11 
o'clock  precisely.  At  12:30  o'clock  the  debtor  banks  pay  their  balances 
at  the  clearing-house  in  currency,  and  the  creditor  banks  x'eceive  their 
balances  at  1  o'clock.  Checks  not  good  must  be  returned  by  12  m.  to 
the  bank  sending  them,  and  must  be  satisfied  by  2:30  p.  m.    All  checks 


394  PRACTICAL  BANKING. 

presented  in  payment  of  notes  and  drafts  (except  when  presented  by 
the  runner)  must  be  certified  by  the  bank  on  which  they  are  drawn. 
Although  the  rules  require  the  payment  of  balances  in  currency  they 
are,  as  a  matter  of  accommodation  between  the  banks  when  exchange 
is  plentiful,  often  paid  by  checks  on  New  York,  Philadelphia  or  Balti- 
more. 

At  Syracuse  the  exchanges  take  place  at  10:20  a.  m.,  and  occupy 
five  minutes,  the  paper  cleared  being  checks,  certified  notes  and  ac- 
cepted drafts.  No  distinguishing  mark  is  affixed  to  paper  cleared.  Bal- 
ances are  paid  as  convenient  within  two  hours  following  the  clearing 
in  drafts  on  New  York. 

Notwithstanding  the  space  given  to  the  foregoing  particulars  in 
relation  to  the  various  clearing-houses  in  the  United  States,  many 
matters  of  interest  have  been  necessarily  omitted,  while  others  of  im- 
portance, familiar  to  those  connected  with  clearing-house  business,  may 
have  been  overlooked.  In  the  collection  of  such  a  variety  of  data 
from  so  many  different  sources,  errors,  both  of  omission  and  commis- 
sion, are  liable  to  occur.  Enough  has,  however,  been  brought  together 
to  furnish  material  for  suggestive  comparisons  as  to  the  methods  in 
use  2t  the  various  clearing-liouses.  When  all  the  clearing-houses,  how- 
ever unimportant  their  operations  may  seem,  shall  preserve  full  and 
accurate  records  of  their  business  in  its  various  details,  such  com- 
parisons will  shed  increased  light  upon  the  movements  of  our  internal 
commerce,  and,  still  better,  repay  careful  study. 


FOREIGN  CLEARINU-HOUSES.  395 


CHAPTER    XII. 


FOREIGN    CLEARIXG-H0UST:S. 


Of  foreign  cleariug-houses.  by  far  the  most  important  is  that  of 
London,  embracing  twenty-seven  banlvs,  including  the  Banli  of  England, 
which  only  became  a  meml>er  about  twenty  years  ago,  and  clears  only 
on  one  side,  that  is,  its  charges  on  other  banks.  These,  being  obliged  as 
members  of  the  clearing-house  to  keep  an  account  with  the  Bank  of 
England,  pay  in  their  charges  against  it  to  the  credit  of  their  account. 
A  considerable  number  of  London  banks  in  high  credit  have  so  far  been 
refused  the  privilege  of  membership  in  the  clearing-house.  Indeed  so 
exclusive  was  it  formerly  that  until  1S54  the  joint  stock  banks  were 
refused  admission.  The  West  End  and  Scotch  banks  and  others  not 
yet  admitted,  clear  through  members. 

The  number  of  daily  clearings  at  London  is  three,  as  follows: 

ORDINARY  DAYS. 

"Morning  clearing  to  open  at  10:30.  Drafts,  etc..  to  be  received  not 
later  than  11.    Morning  clearing  must  be  closed  by  12. 

"Country  clearing  to  open  at  12.  Drafts,  including  returns,  to  be 
received  not  later  than  12:30.    Country  clearing  must  be  closed  by  2:15. 

"Afternoon  clearing  to  open  at  2:30.  Drafts,  etc..  to  be  received 
not  later  than  4.  Returns  to  be  received  not  later  than  15,  excepting 
on  settling  days,  when  the  last  delivery  shall  be  at  4:15,  and  returns 
at  5:15." 

FOURTHS  OF  THE  MONTH. 

"Morning  clearing  to  open  at  9.  Drafts,  etc.,  to  be  received  not 
later  than  10.    Morning  clearing  must  be  closed  by  12." 

Country  clearing  takes  place  as  on  ordinary  days,  and  afternoon 
clearing  as  on  settling  days,  except  when  the  fourth  of  the  month 
occurs  on  Saturday,  in  which  case  the  hours  are  as  on  ordinary  days. 

SATURDAYS   (NOT  BEING   FOURTHS). 

"Morning  clearing  to  open  at  9.  Drafts,  etc.,  to  be  received  not 
later  than  10.    Morning  clearing  must  be  closed  by  11. 


396  PRACTICAL  BANKING. 

"Country  clearing  to  open  at  11.  Drafts,  including  returns,  to  be 
received  not  later  than  11:30.    Country  clearing  must  be  closed  by  1:15. 

"Afternoon  clearing  to  open  at  1:30.  Drafts,  etc..  to  be  received  not 
later  than  3.    Returns  to  be  received  not  later  than  4." 

In  explanation  of  certain  terms  used  at  the  London  clearing-house 
it  may  be  stated  that  an  "article"  is  a  bill,  "or  check  or  dividend 
warrant,  or  banlier's  payment  slip,  or  memorandum  for  country  notes, 
or  indeed  any  article  that  is  paid  into  the  clearing  for  settlement  there." 

"A  'charge'  is  a  batch  of  articles  (i.  e.,  bills,  checks,  bankers'  pay- 
ments, etc.)  sent  into  the  clearing-house  by  one  banker  to  be  charged 
by  him  against  another. 

"  'Returns'  are  any  articles  which  may  be  returned  into  the  clearing 
house  unpaid,  from  want  of  funds,  irregularity  of  endorsement,  no  ad- 
vice, or  from  any  other  cause." 

The  officer  having  charge  of  the  clearing  is  called  an  inspector, 
and  not  a  manager,  as  in  this  country.  The  London  clearing-house  has 
two  inspectors.  Instead  of  blanks,  such  as  are  used  at  American  clear- 
ing-houses, books  are  used.  The  checks  and  bills  to  be  presented  by 
any  one  clearing  banker  upon  any  other  are  entered  at  home  in  the 
"Out-clearing  book."  There  is  also  the  "In-clearing  book,"  in  which  are 
entered  the  amounts  of  the  checks  received  in  the  exchange;  the  out 
returns,  the  in  returns,  the  clearing  balance  book,  the  clearing  differ- 
ence book,  etc. 

The  London  clearing-house  is  a  plain  oblong  room  with  rows  of 
desks  in  compartments  round  three  sides  and  down  the  middle.  A 
small  office  for  the  two  inspectors  stands  at  one  end.  Each  bank  sends 
as  many  clerks  to  the  house  as  may  be  requisite  for  the  rapid  com- 
pletion of  the  work,  some  of  the  banks  having  as  many  as  six  clerks. 
The  mode  of  conducting  the  business,  as  described  in  the  last  edition 
of  "Gilbart  on  Banking."  is  substantially  as  follows: 

The  matter  cleared  at  the  morning  clearing  consists,  as  a  rule,  of 
bills  and  marked  checks.  These  bills  are  bills  which  have,  been  dis- 
counted by  the  bank  or  held  for  collection  on  account  of  customers. 
During  the  afternoon  of  the  day  before  they  fall  due,  they  are  passed 
from  the  bill  department  into  the  clearing  department,  so  as  to  let  the 
clearing  clerks  get  an  early  start  next  morning.  On  the  morning  of  the 
day  on  which  they  mature,  the  clearing  clerks  sort  them  into  various 
packages,  one  for  each  of  the  other  twenty-five  (or  if  the  Bank  of 
England  twenty-six)  clearing  banks.  Thus  those  which  fall  due  at  the 
London  and  Westminster  Bank  are  sorted  into  one  parcel,  and  the 
same  in  other  cases.  The  amounts  only  are  then  entered  in  the  spaces 
left  under  the  respective  headings  of  the  other  banks  in  the  Morning 
Bill  Book.  The  clearing  clerks  then  sum  up  the  entries  in  this  book, 
and  check  the  aggregate  of  the  various  totals  with  the  sum  supplied 
to  them  on  a  memorandum  by  the  bill  department  of  the  bank.  If  right, 
their   clearing   work    is   checked   so   far,   and   they   then   transfer   the 


FOREIGN  CLEARINO-HOUSES.  397 

various  totals  into  the  out-clearing  book.  Having  done  this  they  next 
proceed  to  deal  with  the  "marked  checks."  These  are  checks  which 
liave  been  paid  in  by  customers  on  the  afternoon  of  the  day  before, 
too  late  for  the  day's  clearing.  Every  afternoon  each  bank  sends  these 
checks  out  to  the  other  banks  upon  which  they  are  drawn  to  be 
marked  for  payment.  This  marking  consists  of  the  initials  of  one  of  the 
cashiers  put  upon  the  checks  as  an  acknowledgment  that  they  are 
all  right  and  will  be  duly  paid  in  the  clearing  next  morning.  The 
banks  send  out  these  checks  to  be  marked  chiefly  for  the  convenience 
of  their  customers,  but  partly  for  their  own  protection  in  case  a  cashier 
might  pay  against  an  uncleared  check  which  might  afterwards  prove 
to  be  bad.  If  a  banker  chose  not  to  send  out  such  checks  for  marking, 
no  question  could  be  raised  by  his  customer  as  to  want  of  due  presen- 
tation, because  it  is  distinctly  stated  on  the  pay-in  slips  with  which  each 
customer  is  supplied,  or  the  customer  is  acquainted  in  some  other  form, 
that  checks  not  paid  in  by  3:30  may  not  be  cleared  the  same  day. 
These  marked  checks  are  sent  to  the  clearing-house  the  first  thing  in 
the  morning  along  with  the  bills,  and  the  two  together  form  what  is 
termed  the  "first  charge."  Some  of  the  banks  try,  and  some  manage, 
to  get  the  remittances  received  in  their  morning  letters  into  their  first 
charge;  but  as  the  morning  clearing  closes  for  delivery  at  11  o'clock, 
none  but  those  bankers  who  begin  business  very  early  can  put  through 
so  large  an  amount  of  work  with  any  degree  of  satisfaction  in  time  for 
the  morning  clearing. 

Although  the  afternoon  town  clearing  nominally  begins  at  2:30  p. 
m.,  and  closes  for  delivery  at  4  p.  m.,  the  clearing-house  clock  is  always 
kept  five  minutes  behind  Greenwich  time,  so  that  the  representatives 
of  the  various  banks  have  always  five  minutes  grace  allowed  them. 

To  the  afternoon  clearing,  which  is  the  heaviest  in  the  day,  the 
banks,  as  a  rule,  send  in  some  six  or  seven  "charges."  But,  in  excep- 
tional times,  for  instance,  during  the  progress  of  dividend  payments, 
or  when,  from  any  cause,  business  is  particularly  brisk,  many  more 
cliarges  are  sent  in.  But  in  ordinary  times  about  half  a  dozen  is  the 
usual  number.  At  the  opening  of  the  afternoon  clearing  the  first  charge 
delivered  is  usuallj'  composed  of  remittances  received  in  the  morning 
letters.  Then  about  3  o'clock  the  second  charge  is  sent  in,  and  is  com- 
posed of  the  checks  and  other  vouchers  received  over  the  counter  during 
the  morning  by  the  cashiers  for  the  credit  of  customers.  Then,  al)out 
every  twenty  minutes  or  so,  from  3  o'clock  till  4,  charges  of  the  same 
description  are  sent  in.  At  two  or  three  minutes  past  4  (by  the  bank 
clock)  a  final  charge,  consisting  of  a  few  articles  of  large  amount,  or 
articles  which,  for  some  reason,  the  banker  may  be  particularly  anxious 
to  clear,  may  be  sent  in.  There  is  thus  a  clerk  running  between  each 
bank  and  the  clearing-house  from  time  to  time,  delivering  the  charges 
he  has  upon  the  other  banks. 


398  PRACTICAL  BANKING. 

The  first  charge  sent  to  the  clearing-house  during  the  day  is 
marked  on  the  bacli  of  the  last  check  thereof,  with  the  total  amount 
which  in  our  clearing-houses  is  entered  on  the  exchange  slip  attached 
to  the  checks. 

Country  notes  are  not  exchanged  at  the  clearing-house,  but  are 
taken  round  to  the  bankers  who  are  agents  for  the  country  bankers, 
and  exchanged  for  tickets,  which  are  passed  through  the  afternoon 
clearing. 

As  the  clerks  reach  the  clearing-house  with  their  successive  charges 
they  distribute  their  packages  around  the  room  to  the  desks  of  the 
clerks  representing  the  several  paying  banks.  These  clerks,  corre- 
sponding to  our  settling  clerks,  immediately  begin  to  enter  these 
charges  in  the  In-clearing  Books,  in  columns  bearing  at  the  head  the 
name  of  the  presenting  bank.  As  soon  as  this  is  done  the  vouchers  are 
immediately  sent  away  to  the  bank  at  which  they  are  payable,  where 
they  are  critically  examined  and.  if  correct,  posted  in  the  ledgers.  In 
case  there  is  cause  for  refusing  payment,  either  for  want  of  funds, 
irregular  endorsement,  or  irregularity  of  any  kind,  they  are  sent  back 
to  the  clearing  and  returned  to  the  delivering  banker  with  a  distinct 
answer  marked  upon  each  check  of  the  cause  of  the  return.  These 
returns  must  be  sent  back  to  the  clearing-house  not  later  than  5  p.  m. 
on  ordinary  days,  and  not  later  than  5:15  in  any  event,  and  are  entered 
again  as  a  reverse  claim  by  the  bank  dishonoring  them  on  the  bank 
presenting  them.  The  clearing  clerks  do  not  wait  for  the  returns  before 
they  begin  the  balancing  for  the  day.  The  moment  the  clearing-house 
clock  strikes  4  (five  minutes  past  by  Greenwich  time)  they  begin  tht 
process  of  balancing,  leaving  the  retiu'ns,  if  any,  to  be  entered  after- 
wards. Notwithstanding  the  vast  daily  transactions  of  the  London 
clearing-house,  the  aptitude  of  the  clerks  for  their  particular  work 
renders  errors  of  infrequent  occurrence.  The  system  of  marking  the 
first  and  largest  charge  on  the  back  facilitates  the  balancing  by  the  op- 
portunity it  gives  to  each  clerk  of  checking  the  major  part  of  his  work 
early  in  the  day. 

The  In-clearing  Book  of  each  clerk  ought  to  agree,  of  course,  with 
the  portions  relating  to  him  of  the  Out-clearing  Books  of  the  other 
clerks.  The  Out-clearing  Book,  it  will  be  remembered,  is  written  up 
inside  the  bank,  and  carried  to  the  clearing-house  gt  4  o'clock  for  the 
purpose  of  checking.  Each  clerk  compares  his  work  with  that  of  the 
other  clerks,  one  by  one.  If  he  is  right  with  all  he  then  balances, 
and  there  is  no  further  trouble;  but  if  he  is  wrong  with  any,  to  any 
large  amount,  he  is  bound  to  discover  his  error  before  leaving  the  house. 
The  total  amount  of  the  morning  and  country  delivery  must  be  agreed 
by  each  before  leaving  the  clearing-house.  As  to  the  other  clearing,  a 
difference  of  £1,500  over  (the  in-clearing  clerk  being  always  supposed 
right),  or  of  less  than  £1,000  short,  is  allowed  to  stand  over  until  the 
following  day  if  it  cannot  be  readily  discovered.    Considerable  con- 


FOBEIGN  CLEARINa«HOUSES.  399 

fusion  sometimes  arises  from  shouting  corrections  across  the  room  from 
one  clerli  to  another. 

The  country  clearing  was  introduced  by  Sir  John  Lubboclc  in  1858. 
Every  banlc  in  London  receives  during  the  day  a  large  number  of 
checks  upon  country  bankers.  Upon  these  checks  the  name  of  the  Lon- 
don agent  is  printed.  Every  clearing  banker  in  London  is  the  agent  for 
one  or  more  country  banks.  Thus  the  Loudon  and  Westminster  Bank 
is  the  London  agent  for  the  North  and  South  Wales  Bank,  the  Notting- 
ham and  Notts  Bank,  and  Hall,  Lloyd  &  Co.  On  the  checks  drawn  on 
these  country  banks  the  name  of  the  London  and  Westminster  Bank 
is  printed  as  their  respective  agents.  So  when  the  clearing  clerks  of 
each  bank  get  such  checks  from  the  cashiers,  correspondence  depart- 
ment, and  other  sources,  they  proceed  to  arrange  them  for  clearing  as 
they  do  town  checks,  sorting  them  and  putting  them  up  in  packages 
according  to  the  London  agents  at  which  they  are  payable.  No  credit 
is  given  in  the  clearing  for  these  country  checks  on  the  day  on  which 
they  are  delivered.  The  amounts  are  simply  settled  by  the  delivering 
clerks  and  the  receiving  clerks,  and  then  the  articles  are  taken  to  the 
respective  banks,  whence  they  are  sent  by  post  the  same  evening  to  the 
country  bankers  by  whom  they  are  payable.  If  these  checks,  on 
reaching  their  destination,  are  found  to  be  in  order,  they  are  credited 
in  account  with  the  London  agent,  and  advised;  but  If  any  of  them 
are  not  in  order,  either  from  insuflicient  funds  or  irregular  endorsement, 
or  any  other  cause,  such  irregular  checks  are  returned  direct  to  the 
banker  whose  crossing  they  bear.  All  country  checks  not  returned  or 
advised  by  the  morning  of  the  third  day  are  assumed  to  be  paid,  and 
credit  is  accordingly  given  for  them  in  the  clearing  of  that  day  and  the 
amount  is  settled  for,  along  with  those  advised  paid,  in  the  final  bal- 
ance. All  country  checks  held  by  London  bankers,  returned  unpaid, 
must  be  returned  into  the  hands  of  the  clerk  representing  the  deliver- 
ing bank  by  12:30  on  the  third  day,  and  they  are  simply  deducted  from 
the  total  of  the  country  checks  on  the  day  of  settlement.  The  balance 
only  of  the  country  clearing  is  brought  into  the  final  settlement  on  each 
bank's  town  clearing  balance  sheet,  as  will  be  seen  by  reference  to  the 
form  given  below.  "C.  H."  on  the  same  form  means  clearing-house,  and 
is  meant  for  the  adjustment  of  differences,  and  "Bank"  means  Bank  of 
England. 


400 


PRACTICAL  BANKING. 


Specimen    Form  of  a   London  Bankers'  Clearing  Balance  Sheet. 
The  National  Provincial  Bank  of  England. 

Debtors.  Creditors. 


£ 


s.      d. 


Alliance 

Barclay.. 

Barnett 

Bosanquet 

Brown 

Central        

City 

Consolidated 

County  

Dimsdale 

Fuller 

Glyn 

Imperial 

Joint 

Bank 

London  &  South  Western 
London  &  Westminster. . . 

Martin 

Metropolitan  

National  

Prescott 

Robarts 

Southwarlc  *     . .        

Smith 

Union 

Williams    

Country  Clearing 

C.  H         


£ 


♦This  is  the  Southwark  branch  of  the  London  and  Westminster  Bank  which  clears 
separately. 

This  sheet  when  filled  up  shows  the  account  of  the  National  Pro- 
Tlncial  Bank  of  England  with  all  the  other  clearing  banks,  their  names 
being  abridged  to  save  space.  It  nearly  corresponds  with  the  settling 
clerk's  statement  in  the  New  York  clearing-house,  the  name  of  the 
bank  whose  accounts  it  represents  being  given  at  the  head  and  omitted 
In  the  body  of  the  statement. 

Balances  are  settled  at  the  close  of  each  day  by  transfers  on  the 
books  of  the  Bank  of  England,  at  which  a  special  account  is  kept, 
called  the  "Clearing  Bankers'  Account,"  in  addition  to  the  separate 
account  of  each  bank.  When  the  result  of  the  day's  clearing  is  a 
balance  against  one  of  the  banks,  Barclay  &  Co.,  for  example,  the 
transfer  is  made  in  the  following  form: 


settlement  at  the  clearing-house. 

London,  July  1,  1899. 
To  the  Cashiers  of  the  Bank  of  England: 

Be  pleased  to  transfer  from  our  account  the  sum  of  fifty-one  thou- 
sand two  hundred  and  one  pounds  4s.  2d.,  and  place  it  to  the  credit  of 
the  account  of  the  elearing  bankers,  and  allow  it  to  be  drawn  for  by 
any  of  thein  (Avith  the  knowledge  of  either  of  the  inspectors,  signified 
by  his  countersigning  the  drafts). 
£51,201  4s.  "id.  Barclay  &  Co, 


FOREIGN   CLEARING-HOUSES.  401 

For  which  the  bank  sigus  the  followiug  certificate: 

SETTLEMENT   AT  THE  CLEARING-HOUSE. 

Bank  of  England:  London,  July  1,  1899. 

A  transfer  for  the  sum  of  fifty-one  thousantl  two  hundred  and  one 
pounds  4s.  I2d.,  has  this  evening  been  made  at  tlie  bank  from  tlie  ac- 
count of  Messrs.  Barclay  &  Co.  to  the  account  of  the  clearing  bankers. 
£51,201  4s.  2d.  Pqj^  ^,^^  ^^^^  ^^  England. 

This  certificate  has  been  seen  by  me, 

Inspector. 

On  the  other  hand,  when  the  balance  is  in  favor  of  the  bank,  the 
National  Provincial,  for  instance,  the  following  forms  are  used: 

settlement  at  the  clearing-house. 

London,  July  1,  1899. 
To  the  Cashiers  of  the  Bank  of  England: 

Be  pleased  to  credit  our  account  the  sum  of  two  hundred  and  thirty- 
six  thousand  and  forty-four  pounds  2s  2d.  out  of  the  money  at  the 
credit  of  the  acount  of  the  clearing  bankers. 

For  the  National  Provincial  Bank  of  England, 
£230,044  2s.  2d.  A.  B. 

Seen  by  me 

Inspector  at  the  Clearing-house. 

For  which  the  bank  gives  the  following  certificate: 

SETTLEMENT   AT  THE  CLEARING-HOUSE. 

Bank  of  England:  London,  July  1,  1899. 

The  account  of  the  National  Provincial  Bank  of  England  has  this 
evening   been   credited    with   the   sum   of   two   hundred   and   thirty-six 
thousand  and  forty-four  pounds  2s.  2d.  out  of  the  money  at  the  credit 
of  the  account  of  the  clearing  bankers. 
£236,044  2s.  2d.  For  the  Bank  of  England. 

As  the  balances  paid  and  the  balances  received  are  the  same  (errors 
excepted),  so  the  amount  credited  to  the  clearing  bankers'  account  each 
day  must  be  the  same  as  the  amount  debited.  It  is  only  a  means  by 
which  the  debtor  banks  pay  the  creditor  banks  on  each  day  by  a 
simple  transfer,  without  handling  any  cash.  Previous  to  1854  balances 
were  paid  in  cash.  The  per  cent,  of  balances  to  clearings  is  consider- 
ably greater  at  London  than  at  New  York,  and  has  shown  a  marked  in- 
crease. In  ISIO  the  balances  were  4.08  per  cent,  of  the  clearings;  in 
1839,  0.94  per  cent.,  and  in  1879-80,  12.10  per  cent.,  as  compared  with 
4.90  per  cent,  at  New  York  in  1879.  The  balances  are  probably  greater 
on  account  of  country  clearings. 

By  having  three  clearings  instead  of  one,  and  allowing  banks  to 
bring  so  many  successive  charges  at  intervals  to  each  clearing,  instead 
of  one  charge  delivered  precisely  at  a  given  hour,  the  clearing-house 


402  PRACTICAL  BANKING. 

work  occupies  very  much  more  time  than  at  New  York,  where  the 
transactions  are  considerably  larger.  In  fact,  substantially,  the  whole 
(lay  is  spent  by  the  clearing  clerks  at  the  clearing-house,  or  in  going 
to  and  from  it,  whereas  at  New  York  an  hour,  or  less,  for  each  clerk 
and  messenger  suffices  for  the  whole  work.  On  the  other  hand,  by 
having  so  many  clearings,  and  the  heaviest  at  the  close  of  the  day, 
mercantile  paper  sent  through  the  clearing  is  more  promptly  pre- 
sented. 

The  Manchester  clearing-house  was  established  in  1872,  and  has, 
since  that  date,  been  under  charge  of  Mr.  I).  T.  Brewer,  as  inspector. 
The  work  there  is  performed  on  loose  forms,  and  not  in  account  books, 
as  at  London.  The  work  is  done  more  nearly  on  the  plan  prevailing 
at  New  York,  which  is,  in  several  respects,  an  improvement  on  that 
prevailing  at  Loudon.  There  are  two  clearings  daily  at  the  branch  of 
the  Bank  of  England,  the  first  at  11:15  a.  m.  (a  preliminary  one),  and 
the  second  at  2:1.5  p.  m.  The  clearing  is  quickly  accomplished,  and 
"goes  on  with  noiseless  ease,  strongly  contrasting  with  the  turmoil  of 
the  London  house."  This  is,  of  course,  owing  in  part  to  the  immensely 
larger  transactions  effected  at  the  latter.  At  Manchester  each  of  the 
twelve  clearing  bankers  is  represented  by  a  single  clerk,  who  delivers 
and  receives  the  vouchers  and  adjusts  the  accounts.  The  balances  for 
the  day  are  settled  after  the  close  of  the  second  clearing  by  transfers 
on  the  books  of  the  Bank  of  England,  the  forms  being  very  similar  to 
those  used  at  London.  The  clearing-house  at  Newcastle-on-Tyne  was 
established  January  2.  1872.  and  embraces  seven  members.  On  ordi- 
nary days  there  are  three  clearings  daily,  usually  at  11:15  a.  m..  2:15 
and  3:15  p.  m.  On  January  1  there  is  one  at  10:30  a.  m.  On  Saturdays 
and  holidays  there  are  two  clearings,  usually  at  11:15  a.  m.  and  1:15 
p.  m.  Articles  dishonored  are  returned  through  the  clearing-house  on 
the  same  day.  not  later  than  forty-five  minutes  after  the  commence- 
ment of  the  last  clearing.  The  methods  of  doing  the  business  and  pay- 
ing balances  are  similar  to  those  in  use  at  Manchester.  The  total  of  its 
transactions  in  twelve  years  has  been  £332.470,12.5,  as  compared  with 
£1,043,300,000  at  Manchester.  The  opex'ations  of  the  Newcastle  clear- 
ing-house are  conducted  at  the  branch  of  the  Bank  of  England,  under 
charge  of  a  committee,  of  which  the  agent  of  the  bank— at  present  Mr. 
J.  B.  Fairley— is  chairman. 

There  are  also  clearing-houses  at  Liverpool,  Edinburgh  and  Dublin. 
At  Edinburgh  there  is  one  general  clearing  daily,  opened  at  1  and 
closed  for  delivery  at  1:15  p.  m..  except  on  Saturday,  when  it  opens 
at  11  and  closes  at  fifteen  minutes  past.  The  Bank  of  Scotland  and  the 
Royal  Bank  of  Scotland  undertake  the  settlement  each  alternate 
month.  There  is  also  a  note  exchange  daily  at  10  a.  m.,  except  on 
Monday,  and  a  second  exchange  at  1:30  p.  m.  on  Saturday  for  large 
notes  only.  On  Monday  and  Thursday  the  balances  are  included  in  the 
general  settlement  of  the  exchange  and  clearing.    On  other  davs  the 


FOREIGN   CLEARING-HOUSES.  403 

settling  bank  receives  from  the  debtors  auil  gives  to  the  creditors 
exchange  vouchers  for  the  respective  balances  within  one  hour  after  the 
closing  of  the  clearing-house,  and  these  vouchers  are  brought  into  the 
next  clearing,  and  bear  interest,  included  in  them,  at  two  per  cent, 
until  that  cK-aring.  Each  document  cleared,  except  notes,  is  to  bear  a 
clearing-house  stamp,  containing  the  name  of  the  clearing  bank  and 
the  date,  also  the  stamp  of  any  district  branch  at  which  it  may  have 
been  cashed.  Documents  dishonored  are  settled  between  the  banks, 
unless  drawn  on  a  branch,  in  which  case  they  may  be  sent  through 
the  clearing  the  next  day.  These  banks  use  clearing  books  having 
every  alternate  sheet  perforated  down  the  inside  margin.  The  charges 
against  the  other  banks  are  written  up  in  pencil  on  the  uuperforated 
sheets,  and  by  the  aid  of  a  sheet  of  carbonized  paper  placed  under- 
neath, an  impression  of  the  items  is  taken  on  the  perforated  sheets. 
These  duplicates  are  then  torn  out  and  handed  over  with  the  corre- 
sponding articles  to  the  clerks  of  the  other  banlis,  who  simply  compare 
the  one  with  the  otlier,  so  as  to  save  the  time  and  trouble  of  taking 
down  afresh  in  their  own  books  the  amounts  of  the  various  articles. 
When  the  clerks  return  to  their  respective  banks,  these  duplicates  are 
gummed  upon  the  margins  from  which  their  own  delivering  sheets  had 
been  detached,  preserving  a  convenient  record  of  the  articles  delivered 
to,  and  the  articles  received  from  each  bank  following  each  other.  All 
abstracts  of  totals,  balances  and  the  like,  are  kept  in  a  permanent 
form,  written  in  ink.  The  paid-up  capital  of  the  Edinburgh  clearing 
banks  is  £8.250,000. 

The  Dublin  clearing-house  comprises  four  banks— all  the  banks  of 
issue  in  Ireland— and  was  established  in  184.5.  The  capital  of  the  four 
banks  is  £5,040,000.  There  are  two  clearings— in  the  forenoon,  for  notes 
and  checks  at  10  o'clock;  afternoon,  final  clearing  for  checks  at  2  o'clock. 
On  Saturdays  the  hours  are  0:30  a.  m.  and  12  m.  Banks  are  admitted 
to  the  exchange  for  fifteen  minutes  after  these  hours.  Balances  are 
paid  in  exchequer  bonds,  except  for  fractional  parts  of  £500,  which 
may  be  paid  in  notes  of  the  debtor  bank,  the  exchequer  bonds  to  be 
used  for  no  other  purpose,  and  to  be  stamped  "Dublin  Exchanges." 
Each  bank  is  requii'ed  to  maintain  its  quota  of  a  total  of  £400,000  of 
these  bonds.  The  exchanges  are  made  at  the  Bank  of  Ireland.  All 
orders  payable  on  demand,  whether  in  Dublin  or  in  country  towns,  are 
to  be  passed  through  the  clearing-house.  Documents  returned  dishon- 
ored are  not  allowed  to  pass  through  the  clearing-house.  Those  banks 
in  Dublin  which  are  not  banks  of  issue  are  not  members  of  the  associa- 
tion, but  deposit  the  checks  they  hold  on  other  banks  with  the  Bank  of 
Ireland,  with  which  they  keep  an  account. 

In  preparing  the  foregoing  account  of  British  clearing-houses  free 
use  has  been  made  of  "Gilbart  on  Banking"  and  .Tevons'  "Money  and 
the  Mechanism  of  Exchange."  and  of  a  series  of  articles  recently  pub- 
lished in  the  London  Bankers'  Magazine  on  the  clearing-house  system. 
The  Liverpool  Clearing  Association  was  formed,   according  to  United 


404  PRACTICAL  BANKING. 

States  Congul  S.  B.  Packard,  about  1878,  and  embraced  in  1882,  ten  of 
the  Liverpool  banks,  leaving  six  establishni'uts.  mostly  private  banks, 
outside.  These  banks  keep  clearing  accounts  with  each  other  of  all 
checks  drawn  on  any  of  their  number.  Each  bank  every  evening  makes 
up  in  its  own  books  the  accounts  with  each  of  the  other  clearing  banks, 
and  settles  the  balances  due  from  or  to  it  by  means  of  transfers  through 
the  Bank  of  England's  Liverpool  branch,  with  which  all  the  clearing 
banks  keep  an  account.  The  capital  of  the  Liverpool  clearing  banks, 
exclusive  of  two  private  banks,  was,  in  1882,  £3,815,110. 

Clearing-houses  were  established  at  Paris  and  Vienna  in  1872.  At 
the  latter,  in  fact,  there  are  two  clearing-houses,  the  bankers'  clearing- 
house and  the  Arrangement  Bureau,  or  Stock  Exchange  clearing-house. 
The  latter  alone  has  transactions  of  any  great  magnitude.  The  volume 
of  the  check  exchange  is  small,  as  most  of  the  public  find  bank  notes 
cheaper  and  more  convenient  than  checks,  which  are  subject  to  a  tax 
of  two  kreutzers  (about  one  cent)  each,  regardless  of  size.  The  Paris 
clearing-house  has  been  already  noticed.  In  1876  a  system  of  check 
exchange  was  started  in  Berlin,  and  developed  to  such  proportions 
that  in  1883  clearing-houses  were  established  in  Berlin  (April  2),  Frank- 
fort-on-the-Maine  (April  25),  and  Cologne,  Stuttgart,  Leipsic,  Dresden, 
and  lastly  Hamburg,  in  the  course  of  the  summer.  The  President  of 
the  Imperial  Bank  Directorium  states  that  these  institutions  are  not 
widely  different  from  the  clearing-houses  of  London  and  New  York. 
The  most  important  of  the  German  clearing-houses  are  those  of  Berlin, 
Hamburg,  and  Frankfort-on-the-Maine,  the  others  falling  tar  behind 
these.  Previous  to  last  December  the  volume  of  transactions  at  these 
clearing-houses  was  not  published.  For  December  the  aggregate  for 
all  was  887,546,700  marks,  and  in  January,  1884,  930,707,700  marks,  or 
at  the  rate  of  11,1(58,492,400  marks— or  about  .$2,680,000,000— for  the 
year.  This  is  a  little  more  than  Chicago,  and  a  little  less  than  Phila- 
delphia. There  are  fourteen  clearing-houses  in  Italy,  located  at  Milan, 
Leghorn,  Genoa,  Catania,  Rome,  Bologna,  and  other  places.  The  trans- 
actions of  these  six  clearing-houses  amounted,  in  1884,  to  1,685,345,781 
f.,  or  about  ?325,000,000,  those  of  Milan  and  Leghorn  being  the  only 
ones  of  importance. 

The  banks'  clearing-house  of  Melbourne,  Australia,  is  analogous  to 
the  other  British  clearing-houses.  On  ordinary  days  there  are  six 
clearings;  on  Saturdays  four;  on  Mondays  eight;  on  Tuesdays  five.  An 
exchange  slip  accompanies  each  charge  delivered  at  the  clearing-house. 
There  is  a  special  clearing  for  checks  returned  dishonored  for  any 
cause.  Balances  are  paid  every  Tuesday,  all  even  sums  of  £.500  and 
upwards  in  sovereigns  or  parchment  vouchers.  These  vouchers  are 
issued  against  a  deposit  of  sovereigns  at  one  of  the  banks  under  the 
care  of  trustees,  and  are  of  denominations  of  £500  and  £1,000.  The 
total  issue  is  £.500,000.  All  sums  under  £.500  are  settled  by  checks, 
which  are  paid  into  a  clearing-house  account  kept  at  one  of  the  banks. 
Bank  notes  have  been  included  in  the  clearing  since  1876. 


COUNTRY  CLEARINGS.  405 


CHAPTER     XIII. 


COUNTRY     CLEARINGS. 


At  London,  as  already  stated,  the  country  clearing-house  has  been 
in  operation  since  1858.  But  in  this  country  clearing  methods  have 
hitherto  been  applied  only  to  transactions  among  banks  situated  in  the 
same  place  or  its  immediate  vicinity,  though  susceptible  of  extension 
to  transactions  between  different  monetary  centers  and  possibly  even 
^o  international  settlements.  The  establishment  of  some  system  for  the 
more  speedy  and  economical  collection  of  country  checks  is  a  matter 
of  growing  importance  owing  to  changes  in  the  methods  of  doing  busi- 
ness. Formerly  under  the  State  bank  system  it  was  the  almost  uni- 
versal custom  for  merchants  in  the  interior  of  New  England  to  pay 
their  bills  in  Boston  by  sending  the  money  or  a  check  on  a  Boston 
bank  which  they  olitained  from  their  nearest  country  bank,  paying 
for  the  same  the  usual  charge  for  exchange.  But  in  later  years  a  dif- 
ferent practice  has  been  growing  up.  The  country  trader  now  sends 
his  Boston  creditor  a  check  upon  the  country  bank  where  he  keeps  his 
account.  The  country  banks,  of  course,  expect  to  pay  these  at  par  at 
their  own  counters,  but  they  will  not  as  a  rule  provide  funds  to  meet 
them  in  Boston  without  a  charge  for  exchange,  varying  from  one-tenth 
of  one  per  cent,  on  the  larger  checks  to  one-quarter  or  even  one-half 
of  one  per  cent,  on  the  smaller  one.  So  keen  is  the  competition  among 
traders,  however,  that  these  checks  are  taken  by  them  at  par,  and  the 
banks  driven  also  by  competition  usually  do  likewise.  To  avoid  the 
charges  made  by  the  country  banks,  checks  are  frequently  sent  home 
by  the  most  circuitous  routes,  traveling  about  from  city  to  city  and  from 
bank  to  bank  for  several  days.  An  instance  is  given  where  a  check 
for  $48  on  a  bank  in  Mt.  Gilead,  Ohio,  deposited  at  Columbus,  was  sent 
successively  to  Cincinnati,  Cleveland,  Urichsville,  Coshocton,  Newark, 
back  to  Columbus,  and  then  to  Cardington,  before  reaching  its  desti- 
nation, being  out  eight  days  and  traveling  050  miles  when  sixty  miles 
would  have  sufficed.  As  the  check  was  not  paid  it  had  to  be  sent 
back  through  the  same  channels.  Another  case  has  been  given  of  an 
item  returned  protested  nineteen  days  after  it  started  for  presentation 
toward  a  paying  bank  twenty  hours  distant.  It  is  easy  to  see  how  by 
these  delays  endorsers  may  be  discharged  to  the  serious  loss  of  some 


406  PRACTICAL  BANKING. 

holder  of  the  check,  not  to  mention  other  contingencies.  It  would  be 
difficult  to  show  that  due  diligence  was  used  in  presenting  a  checli  by 
such  a  circuitous  route.  It  is  said,  too,  that  these  cases  are  by  no 
means  unusual. 

The  growing  importance  of  the  subject  led  to  the  consideration  of 
the  remedies  to  be  adopted  at  the  annual  meeting  of  the  Boston  cleai> 
ing-house  association,  April  9,  1877.  A  committee  was  appointed  con- 
sisting of  Messrs.  George  Ripley,  John  Cummings,  Edward  Sands,  Ed- 
ward L.  Tead  and  George  R.  Chapman,  representing  respectively  the 
Hide  and  Leather.  Shawmut,  Traders'  Exchange  and  Merchants' 
National  banlvs.  This  committee  in  August  made  a  majority  report 
signed  by  Messrs.  Ripley.  Cummings,  Sands  and  Chapman,  and  minority 
report  signed  by  Mr.  Tead.  From  the  majority  report  it  appears  that 
the  daily  outstanding  balances  due  to  fifty  of  the  fifty-one  associated 
banks  on  account  of  New  England  country  collections  then  amounted 
to  $2,187,329.  This  had  increased  in  November,  1883,  to  $4,300,000. 
The  number  of  checks  daily  sent  out  in  1877  was  4,080,  probably  in- 
creased in  like  proportion,  and  the  number  of  letters  sent  daily  was 
1.670,  although  there  were  ony  272  towns  in  New  England  which  had 
national  banks.  The  amount  paid  yearly  for  exchange  and  expenses 
was  computed  to  be  $119,647,  and  interest  on  the  outstanding  balances 
at  five  per  cent,  reached  $109,360.  making  a  total  annual  cost  of  .$229,013, 
increased  to  $398,000  in  1883.  The  cost  of  collecting  each  check  was 
found  by  the  committee  to  be,  for  exchange,  .045  of  a  dollar;  other  ex- 
penses, .048;  interest,  .085,  giving  a  total  of  .178  of  a  dollar,  or  about 
nine  times  the  United  States  stamp  tax  on  a  check,  which  was  justly 
complained  of  by  business  men  and  banks  alike.  The  cost  for  each 
letter  was  forty-four  cents— eleven  cents  for  exchange,  twelve  for  ex- 
penses, and  twenty-one  for  interest.  Under  the  arrangements  then  and 
still  existing,  remittances  from  country  banks  vary  in  frequency  from 
once  a  week  to  once  a  month,  in  exceptional  cases  perhaps  oftener.  It 
was  believed  that  by  a  consolidation  of  the  business  the  amount  of  the 
outstanding  balances  might  be  reduced  one-half  by  more  frequent  re- 
mittances; that  the  item  of  exchange  largely  made  up  of  charges  upon 
Bmall  checks  of  less  than  $200  could  be  very  much  reduced  by  having 
the  remittances  made  in  larger  sums;  and  that  the  sending  of  272  let- 
ters daily,  one  for  each  town  having  a  national  bank,  would  suffice, 
thereby  saving  1,400  of  the  1,670  letters  daily  sent  out.  and  largely 
reducing  the  clerical  expenses.  The  danger  of  loss  resulting  from  delay 
in  presenting  checlvs  would  also  be  reduced  to  a  minimum  by  the  in- 
troduction of  a  better  system.  The  majority  of  the  committee  reached 
the  following  conclusions: 

"1.  That  the  business  of  making  collections  throughout  New  Eng- 
land, as  now  conducted,  is  attended  with  great  unnecessary  labor,  risk 
and  expense. 


COUNTRY  CLEARINGS.  407 

"2.  That  its  extent,  though  now  large,  will  Inevitably  increase  with 
the  growth  of  our  city. 

"3.  That  the  only  way  materially  to  reduce  the  labor,  risk  and  ex- 
pense connected  with  it  is  to  consolidate  the  business." 

To  this  end  they  recommended  the  establishment  of  a  national  bank 
to  be  used  as  an  agency  in  making  such  collections,  the  stock  of  the 
bank  to  be  subscribed  by  members  of  the  clearing-house  association. 

The  minority  report  combats  the  proposed  plan  as  exposing  too 
much  the  business  of  each  bank,  and  as  not  reducing  the  expenses  as 
much  as  the  majoritj*  anticipated.  It  was  shown  that  ten  banks  having 
the  largest  foreign  bank  accounts,  made  more  than  one-half  of  all  the 
New  England  collections  at  an  expense  of  5%  cents  each,  exclusive  of 
interest,  and  that  the  superior  facilities  acquired  by  these  banks  after 
years  of  experience,  could  not  be  transferred  to  the  proposed  collection 
l)ank,  but  would  be  irretrievably  lost  to  themselves  by  the  proposed 
change.  The  indirect  advantages  derived  by  the  banks  from  their 
collection  business,  in  enlarged  acquaintance  and  the  maintenance  of  a 
more  lively  interest  between  the  Boston  banks  and  those  of  the  country, 
were  deemed  a  full  equivalent  for  the  necessary  labor  and  expense 
involved. 

It  was  found,  on  inquiry,  that  as  a  national  bank  cannot  stjb- 
.scribe  to  the  stock  of  another  national  bank,  the  proposed  plan  was 
not  feasible.  The  steady  increase  of  the  business,  however,  again 
forced  the  matter  upon  the  attention  of  the  association.  Another  com- 
mittee was  chosen,  consisting  of  Messrs.  George  Ripley.  .John  Cum- 
mings,  Charles  A.  Vialle,  A.  L.  Newman  and  Walter  S.  Blanehard,  rep- 
resenting, respectively,  the  Hide  and  Leather,  Shawmut,  Republic, 
Commonwealth,  and  Metropolitan  National  banks.  This  committee,  in 
November,  1883,  reported  unanimously  in  favor  of  establishing  an 
agency  similar  to  the  clearing-house,  which  should  have  no  capital  and 
make  no  charge  for  its  services,  but  whose  expenses  should  be  borne 
by  the  banks  in  proportion  to  the  business  done.  On  account  of  the  ex- 
pense attending  such  an  organization  this  plan  was  defeated.  The 
whole  matter  remains,  therefore,  in  its  previously  unsettled  condition. 
It  has  been  suggested  that  the  banks  contract  with  one  of  their  number 
to  undertake  this  business  for  all,  as  more  economical  than  the  proposed 
clearing-house  for  country  checks,  since  an  established  bank  "is  already 
in  possession  of  the  'plant'  necessary  for  the  transaction  of  such  busi- 
ness, and  could  make  money  out  of  it,  with  a  charge  for  exchange 
which  would  not  support  an  independent  clearing-house."  The  unwill- 
ingness of  the  banks  to  expose  their  business  to  one  of  their  number, 
or  to  give  the  collecting  bank  the  advantage  it  would  thus  enjoy  for 
obtaining  country  deposits,  is  likely  to  interpose  a  serious  obstacle  to 
the  adoption  of  this  plan. 

The  matter  of  country  collections  has  also  been  discussed  by  the 
bankers  of  Pittsburg  and  vicinity,  where  Mr.  E.  B.  Isett,  President  of 


408  PRACTICAL  BANKING. 

the  Altoona  Bank,  submitted  a  plan  for  the  formation  of  a  clearing- 
house among  the  country  banks  themselves,  at  some  central  point,  by 
which  the  daily  settlements  could,  it  is  claimed,  be  effected  with  nearly 
as  much  celerity  for  a  district  reached  by  one  day's  mail  as  in  the 
clearing-house  of  a  city.  Such  an  institution  could  but  be  a  source  of 
union  and  strength  to  the  banks  themselves,  as  well  as  a  great  con- 
venience to  the  business  community.  It  would  enable  the  banks  to 
exert  a  coercive  power  over  those  that  I'efused  to  take  part  in  the 
movement  by  rejecting  their  checks.  These  clearing-houses  would  fur- 
nish an  easy  means  of  communication  between  banks  in  different  parts 
of  the  country,  and  establish  on  a  permanent  basis,  the  system  of  par 
redemption  for  country  checks  at  certain  central  points.  The  great 
difficulty  with  this  plan  is  to  arouse  the  country  banks  to  a  sense  of 
their  duty  in  the  matter.  Under  the  present  system  they  enjoy,  at  the 
expense  of  banks  at  the  great  centers,  all  the  advantages  of  par  re- 
demption of  their  checks.  It  is  not  just  that  the  city  banks  alone  should 
bear  this  expense.  The  receipt  of  country  checks  at  par  by  banks  in 
the  great  cities  is  a  matter  of  common  interest,  not  to  them  alone,  but 
to  the  country  banks  and  to  their  customers  alike,  and  all  should  be 
required  to  share  the  necessary  cost. 

The  commercial  unity  of  the  country  demands  a  recognition  in  all 
business  arrangements.  Isolated  action  on  the  part  of  individual  banks 
cannot  permanently  cope  with  the  problem  now  before  us.  Concerted 
action  among  the  banks  at  the  principal  commercial  centers  is  necessary. 
If  all  cannot  be  induced  to  unite  at  first,  let  enough  join  in  some  com- 
mon movement  to  give  it  a  strength  and  prestige  that  shall  gradually 
bring  all  into  the  arrangement.  Those  who  are  familiar  with  the  his- 
tory of  the  Suffolk  Bank  system  for  the  par  redemption  of  New  England 
bank  notes  know  what  bitter  opposition  that  system  at  first  en- 
countered on  the  part  of  the"  country  banks.  The  Suffolk  Bank,  with 
the  six  banks  which  first  inaugurated  the  movement,  was  styled  in 
derision  the  "Holy  Alliance,"  and  sometimes  the  "Six-tailed  Bashaw." 
Yet  the  system  finally  triumphed  over  all  opposition,  and  became  firmly 
established,  to  the  great  benefit  of  the  country  banks  themselves.  For 
forty  years  this  system  gave  a  unique  and  peculiar  character  to  New 
England  banking,  by  virtue  of  which  New  England  bank  notes  attained, 
even  in  remote  parts  of  the  Union,  a  credit  which  was  frequently  re- 
fused to  the  issues  of  the  local  banks.  The  country  banks  will,  no 
doubt,  now  cling  to  the  small  benefits  they  derive  from  the  delays 
in  presenting  checks,  and  the  charges  they  impose  for  exchange,  until 
they  can  l)e  made  to  take  a  broader  view,  and  measure  at  their  true 
value  the  indirect  advantages  which  they  themselves  will  realize  from  a 
comprehensive  and  liberal  policy  In  extending  increased  business  facil- 
ities to  their  customers.  The  internal  commerce  of  the  country  should 
not  be  subjected  to  a  tax  on  transactions  between  city  and  country 
nine  times  as  great  as  the  stamp  tax  on  checks.    This  is  one  of  the 


COUNTRY  CLEARINaS. 


409 


very  evils  that  existed  iu  Englaud  before  the  establishment  of  the 
country  clearing.  The  latter  has  proved  a  complete  remedy  there  as  it 
would  no  doubt  here.  The  details  of  some  working  pla'n  must  be 
elaborated  by  the  bankers  themselves,  but  that  business  is  fast  out- 
growing the  present  system,  if  it  has  not  already  outgrown  it,  is  a 
proposition  which  will  receive  very  general  assent. 

As  some  of  the  clearing-houses  have  until  within  a  few  years  made 
no  returns,  while  others  have  only  recently  begun  to  make  up  their 
statements  by  calendar  years,  an  entirely  accurate  comparative  state- 
ment cannot  be  given.  The  following  shows  approximately  the  stu- 
pendous growth  of  the  system  in  this  country: 


1853 

1854. 

1855 

1856 

1857. 

1858 

1859. 

1860 

1861. 

1862. 

1863. 

1864 

1865. 

1866. 

1867 

1868 

1869 

1870. 

1871 

1872. 

1873. 

1874. 

1875. 

1876. 

1877. 

1878 

1879 

1880. 

1881. 

1882 

1883. 


No.  of 
Asso- 
ciations. 


Total. 


No. 
Reporting. 


Aggregate 

Exchanges^ 

United  States. 

Millions. 


*$1, 304,9 
5,798,6 
5,673,7 
8,404,2 
8,591,4 
7,215,7 
9,069,3 
10,022,1 
7,507,4 
10,120,1 
20,442,4 
30,053,5 
30,437,0 
36,235,9 
30,322,2 
36,079,7 
41,157,1 
32,849,7 
37,200,5 
43,581,5 
37,686,6 
31,822,1 
32,339,7 
29.579,8 
31,944,2 
30,133,1 
38,591,2 
50,113,9 
63,414,6 
60,877,4 
51,827,1 


$870,396,6 


Exchanges 

Outside 

New  York, 

Millions. 


$1,057,4 
1,395,3 
1,839,5 
2,470.5 
2,628,2 
1,991,0 
1,885,3 
3,014,7 
4,413,4 
4,579,0 
4,769,4 
4,511,0 
4,920,0 
5,616,0 
5,763,4 
6,557,5 
7,212,0 
7,846,2 
7,372.0 
8,025,9 
8,103,2 
8,143,5 
7,732,0 
9,355,5 
11,499,5 
14,037,7 
13,960,5 
14,392.8 


1175,072,4 


*Three  months  only. 


PART  IV. 


LOAN  AND  TRUST  COMPANIES. 


(411) 


LOAN   AND  TRUST  COMPANIES.  413 


CHAPTER    I. 


HISTORY   AND   SCOPE   OF   LOAN   AND   TRUST   COMPANIES. 


Loan  and  trust  companies  may,  with  propriety,  be  termed  American 
institutions.  They  had  their  birth  in  this  country.  Charters  under 
which  some  are  worlcing  to-day  date  baclv  sixty  to  seventy  years.  One 
corporation  in  Philadelphia,  doing  a  loan  and  trust  business,  was  or- 
ganized in  1812,  and  another  in  1832.  In  New  York  one  was  granted  a. 
charter  in  1822,  and  another  in  1830.  But  the  great  majority  have  come 
into  existence  within  the  past  twenty  years.  Twenty-five  years  ago 
but  few  of  the  loan  and  trust  companies  now  doing  business  were  in 
existence;  hence  it  may  be  said  that  they  are  a  modern  institution.  In 
many  of  the  larger  cities  one  or  more  may  now  be  found.  In  New 
Yorli  there  are  eleven,  in  Philadelphia  nine,  in  Boston  eight,  and  in 
Chicago  four,  while  in  many  prominent  commercial  centers  there  are 
none. 

The  original  design  of  the  early  corporations  was  that  of  insuring 
lives  and  granting  annuities.  The  business  of  holding  trusts  and  pro- 
curing capital  for  various  enterprises  was  a  secondary  consideration. 
Life  insurance  with  some  of  the  older  companies  was  looked  upon  as 
the  chief  source  of  revenue.  But  the  tendency  of  business  toward 
specialization  has  had  its  influence  upon  these  great  financial  corpora- 
tions, as  it  has  upon  almost  every  department  of  business  and  social 
Ufe.  The  business  of  life  insurance  has  become  a  gigantic  enterprise 
of  itself,  far  surpassing  in  financial  importance  the  operations  of  loan 
and  trust  companies.  It  is  one,  however,  which  does  not  come  for 
consideration  within  the  limits  of  this  treatise. 

The  usefulness  in  the  financial  world  of  loan  and  trust  companies 
is  well  understood.  In  some  respects  they  are  similar  to  banks;  in 
others  they  are  widely  different.  They  receive  deposits  and  make 
loans,  but  they  do  not  issue  currency  nor  undertake  the  general  collec- 
tion of  commercial  paper.  The  purposes  for  which  they  are  organized 
and  the  services  they  perform  are  numerous.  The  scope  of  their  busi- 
ness has  broadened  to  correspond  with  their  growth  of  capital  and  to 


414  PRACTICAL  BANKING. 

keep  pace  with  the  vast  sums  of  money  they  have  charge  of.  By  the 
great  breadth  of  their  charters  they  accept  and  execute  all  Ivinds  of 
trusts.  They  act  as  registrars  and  agents  for  the  transfer  of  stocl^s  and 
bonds,  as  trustees  for  corporations,  and  as  executors,  administrators, 
guardians,  and  receivers  of  money  for  courts  in  complicated  litigations. 
They  do  a  general  financial  business  for  bankers  and  others,  make  in- 
vestments, collect  interest,  and  perform  many  other  financial  services. 
They  are  organized  under  special  charters  granted  by  the  legislatures  of 
the  respective  States  in  which  they  are  located. 


HOW  BUSINESS  IS  CONDUCTED.  416 


CHAPTER    II. 
HOW  BUSINESS  IS  CONDUCTED. 


A  number  of  persons  desire  to  construct  gas  works.  The  city  where 
the  works  are  to  be  built  promises  a  liberal  support  to  the  enterprise. 
The  project  has  been  fully  discussed  by  the  business  men  and  prop- 
erty owners  of  the  place,  and  a  number  of  them  decide  to  combine  their 
eflforts  in  carrying  it  through.  To  build  the  works  and  lay  the  pipes 
requires  a  large  expenditure  of  money.  It  is  learned  that  for  a  good 
part  of  the  necessary  capital  outside  assistance  must  be  asked.  There 
is  nearly  always  plenty  of  money  for  all  such  enterprises,  provided 
it  can  be  shown  that  the  security  is  ample.  In  the  large  financial 
centers,  it  is  known,  there  may  be  secured  the  desired  means  at  a 
fair  rate  of  interest  when  the  investment  can  be  shown  to  be  a  safe 
one.  What  steps  are  best  to  be  taken?  The  promoters  of  the  scheme 
propose  to  organize  a  joint  stock  company. 

Estimates  have  been  made,  which  show  that  fifty  thousand  dollars 
will  make  a  reasonable  start  towards  cari-ying  the  project  along.  A 
canvass  shows  that  capital  stock  to  this  amount  would  be  subscribed 
for.  The  company  is  formed,  a  charter  granted,  and  permission  given 
by  the  city  authorities  to  lay  and  maintain  the  pipe  lines.  Further 
estimates  are  now  made,  and  it  is  shown  that  to  build  the  works  and 
lay  sufficient  piping  for  present  needs  there  will  be  required,  besides 
the  already  paid-in  capital  of  the  company,  about  two  hundred  thousand 
dollars.    This  must  be  secured  by  a  loan. 

The  company  decide  to  issue  first  mortgage  bonds  for  the  amount 
of  money  needed.  If  they  can  find  persons  in  their  own  city  or  among 
the  stockholders  who  are  in  position  and  are  willing  to  loan  the  money 
they  need  not  call  for  outside  assistance.  But  in  this  they  do  not  suc- 
ceed. They  then  must  go  to  some  financial  metropolis  where  money  is 
seeking  investment.  Here  they  are  confronted  with  the  inquiry:  How 
do  we  know  that  our  investment  will  be  a  safe  one?  What  assurance 
have  we  that  your  company  is  properly  organized,  and  that  the  proper 
authority  has  been  given  for  it  to  make  this  loan?  And  each  person 
who  might  be  willing  to  purchase  some  of  the  bonds  demands  the 
right  to  have  an  agent  examine  into  all  the  facts  and  report  upon  the 


416  PRACTICAL  BANKING. 

conditions,  before  tlie  money  could  be  paid  over.  In  this  case  the  com- 
pany must  pay  the  expenses  and  fees  of  the  agents  and  lawyers.  They 
see  such  a  course  is  going  to  make  it  exceedingly  expensive.  But  the 
money  must  be  procured,  and  what  shall  be  done? 

A  happy  thought  occurs  to  them.  They  will  go  to  a  loan  and  trust 
company.  They  visit  one  of  these  institutions,  and  learn  that  they  will 
have  no  trouble  about  securing  the  required  loan,  if  a  clear  title  to  the 
propei'ty  to  be  mortgaged  can  be  shown,  and  the  other  usual  require- 
ments of  investors  in  such  securities  are  found  satisfactory.  "We  will 
transact  your  business  for  you,"  says  an  officer  of  the  trust  company. 
"In  the  first  place  we  must  put  the  matter  in  the  hands  of  our  attorneys, 
who  will  report  upon  the  legal  status  of  your  company.  We  must  know 
how  much  of  your  capital  has  been  paid  in.  The  amount  of  work  you 
have  done  in  the  new  enterprise.  What  your  assets  and  liabilities  are. 
The  recording  of  the  mortgage  bond  of  your  company  may  be  left  with 
us,  or  our  attorneys  will  look  to  see  that  it  has  been  properly  attended 
to.  We  will  issue  the  bonds  from  our  institution,  make  all  transfers, 
and  pay  the  interest  for  you  when  it  becomes  due.  In  fact,  we  will 
transact  the  M'hole  business,  turning  over  the  money  from  the  sale  of 
your  bonds  as  it  is  paid  in.  IIow  much  money  do  you  want  to  pro- 
cure?" 

"We  wish  to  procure  two  hundred  thousand  dollars,  or  what  will 
come  from  a  two-hundred-thousand-dollar  bond.  We  have  invested 
about  forty  thousand  dollars.  The  money  procured  is  to  be  applied  in 
completing  our  works  and  in  extending  the  pipe  lines." 

"If  you  have  invested  only  about  forty  thousand  dollars  and  are 
free  of  debt,  we  would  suggest  that  the  loan  be  made  in  installments. 
We  could  not  undertake  to  issue  the  whole  amount  of  the  bonds,  ex- 
cepting as  the  work  progresses,  and  until  we  are  assured  that  the 
money  received  for  bonds  issued  had  been  properly  applied  in  the  con- 
struction of  the  works.  We  would  issue,  say,  twenty-five  thousand  dol- 
lars as  the  first  installment,  then  we  could  issue  fifty  thousand  dollars 
as  the  second  installment,  and  so  on,  increasing  the  issue  acording  to  the 
increase  in  the  value  of  the  security  ofl:"ered." 

"And  on  what  terms  would  you  undertake  this  business?" 

"We  would  charge  you  by  the  year,  according  to  the  amount  of 
business  transacted,  or  liable  to  be  transacted.  You  would  pay  for  the 
fees  necessarily  incurred  at  the  start,  and  thereafter  probably  two 
hundred  to  three  hundred  dollars  a  year,  according  to  circumstances 
and  agreements  " 

An  agreement  is  entered  into.  The  officers  of  the  gas  company  are 
put   to    no    further   inconvenience   or    delay.    When    they    inform    the 

money-lender  that  the  Loan  and  Trust  Company  have  charge  of 

their  mortgage  business,  and  are  issuing  the  bonds,  no  inquiries  are 
made  as  to  the  legal  status  of  the  company  or  the  mortgage.  The 
capital  is  secured,  and  the  company  pushes  ahead  with  its  work. 


HOW   BUSINESS   IS  CONDUCTED. 


417 


Loan  and  trust  companies  have  often  proven  of  great  service  in  the 
construction  of  railroads.  Of  course  railroads  would  be  built  and 
bonds  disposed  of  without  the  mediation  of  such  agencies,  but  the 
trust  companies  have  greatly  facilitated  the  work  and  reduced  the  ex- 
penses. 

A  party  of  gentlemen,  for  instance,  organize  a  company  to  build  a 
railroad  which  shall  run  through  several  States.  They  cannot  among 
themselves  raise  the  necessary  capital.  They  are  willing  to  risk  a  rea- 
sonable amount  of  money  in  the  project,  if  the  amount  required  to  com- 
plete the  road  ^an  be  secured  after  their  own  investment  shall  have 
been  expended.  They  find,  among  wealthy  capitalists,  persons  who 
are  willing  to  advance  the  funds,  but  they  do  not  wish  to  assume  any 
risks  as  stockholders.  They  prefer  to  loan  the  money  at  a  fair  rate 
of  interest.  If  the  scheme  is  successful  the  projectors  can  pay  the 
money  back  and  own  the  property,  thus  derive  all  the  advantages  ac' 
cruing  from  their  Avisdom  and  risks. 

The  following  is  the  form  of  a  receipt  and  transfer  voucher: 


Folio  Certificates. 
Canceled  No.  ...     ...   . 

Issued  No 


New  York,  19. . . . 

For  value  received do  hereby  assign  and  transfer 

unto 


the*  ..  .. 
standing  in. 
company. 


.Shares  of  the  Capital  Stock  ot 

Company  now 

...name  on  the  books  of  said 


*The  title  of  the  corporation  printed  in  full. 


When  the  promoters  of  the  project  visit  a  loan  and  trust  company, 
they  lay  the  facts  before  the  ofl3cers  of  the  company.  They  are  told 
that  when  they  have  constructed  a  certain  amount  of  road  the  trust 
company  will  undertake  to  place  their  loan  on  the  market.  First,  the 
mortgage  securing  the  loan  must  be  recorded  in  every  county  of  each 
State  through  which  the  road  is  to  run.  Satisfactory  evidences  that  the 
mortgage  is  so  recorded  must  be  in  the  possession  of  the  trust  company. 
Arrangements  can  then  be  made  to  the  effect  that,  as  certain  sections 
of  the  road  are  constructed,  a  certain  number  of  bonds  will  be  issued. 
The  amount  to  be  issued  will  depend  on  the  cost  per  mile  of  con- 
structing the  road.  Purchasers  of  the  bonds* rely  on  the  loan  and  trust 
company  to  see  that  there  is  never  an  over-issue  of  bonds. 

Suppose  the  understanding  between  the  purchasers  of  the  bonds 
and  the  railroad  officials  provides  that  for  the  completion  of  each  ten 


418 


PRACTICAL  BANKING. 


miles  of  road  there  are  to  be  issued  bonds  to  the  amount  of  fifty 
thousand  dollars.  It  becomes  the  duty  of  the  trust  company  to  know 
that  this  amount  is  not  exceeded.  Any  excess  in  issue  would  depreciate 
the  value  of  the  security.  It  is  seen  in  this  how  the  trust  company  serves 
the  interests  of  both  borrowers  and  lenders.  The  trust  company  not 
only  attends  to  the  business  of  the  railroad  company  in  securing  funds, 
but  guarantees  to  purchasers  of  its  securities  that  there  is  no  wrongful 
or  over-issue.  The  part  taken  by  the  trust  company  is  one,  then,  not 
only  to  transact  the  business  for  the  corporation,  but  to  supplement  this 


For  explauation  of  Forms,  see  closing  paragraph  of  this  chapter. 
Left  hand  page. 


.Loan  and  Trust  Company. 


Date  of  Neiii  Certifi- 
cate Countersigned 
and  Issued. 


No.  of 
Ctf 


No.  of 
Shares. 


In  Name  of 


service  by  aiding  in  securing  the  faith  and  confidence  of  investors  that 
the  securities  tliey  take  are  in  every  case  what  they  are  represented 
to  be. 

Another  important  service  is  rendered  by  loan  and  trust  companies 
to  corporations.  That  is,  issuing  certificates  of  stock,  and,  in  case  of 
sale  from  one  person  to  another,  making  transfers  of  same.  Many 
corporations  leave  the  business- connected  with  stock  operations  almost 
entirely  in  the  hands  of  some  loan  and  trust  company.  The  purchase 
and  sale  of  stocks  of  corporations,  especially  those  whose  stocks  are  on 
the  market,  is  made  mostly  in  some  of  the  important  financial  centers 
of  the  country.    Here,  too,  is  where  the  loan  and  trust  companies  are 


HOW   BUSINESS   IS   CONDUCTED. 


419 


located.  It  is  a  special  advantage  to  holders  of  stpclis  to  be  able  to 
have  the  necessary  record  made  on  the  books  of  the  company,  showing 
that  they  are  the  holders,  without  having  to  forward  the  certificates 
to  some  remote  place  for  that  purpose.  By  an  arrangement  between 
the  loan  and  trust  company  and  the  corporation,  the  former  becomes 
the  custodian  of  the  transfer  boolis.  When  an  election  of  officers  of  the 
corporation  takes  place  the  transfer  and  stock  books  must  be  in  the 
hands  of  the  inspectors  of  the  election.  To  meet  this  requirement  the 
books  are  forwarded  or  handed  over  to  the  officers  of  the  corporation 
by  the  loan  and  trust  company. 

When  the  holder  of  shares  of  a  corporation  sells  his  stock,  and  tlie 


Right  hand  page. 


Register  of  Ckrtificates  ok  Stock. 
Countersigned  by  the 

Date  of  Surrendered 
Certificate  Can- 
celed. 

Xo.  of 
Ctf. 

No.  of 
Shares. 

In  Name  of 

Remarks. 

purchaser  wishes  the  transfer  recorded  on  the  books  of  the  company  he 
must  present  to  the  transfer  clerk  at  the  office  of  the  loan  and  trust 
company  the  stock  of  the  seller.  This  stock  becomes  the  voucher  of 
the  transfer  clerk,  showing  his  authority  for  making  the  transfer. 

On  pages  418  and  419  the  formular  arrangement  of  a  register  for 
recording  transfers  of  stock  certificates  is  given.  The  form  on  418  rep- 
resents the  left-hand,  and  on  page  419  tlie  right-hand  page  of  such  a 
register.  The  headings  over  the  several  columns  serve  to  explain  fully 
the  nature  of  the  entries  to  be  made  in  the  book.  The  blank  line  at 
the  top  of  the  right-hand  page  is  left  for  writing  the  title  of  the  corpora- 
tion from  which  the  certificates  are  issued.  The  register  is  kept  by 
the  trust  clerk.    A  separate  register  is  kept  for  each  corporation. 


420 


PRACTICAL  BANKING. 


Record  of  Mortgaoe  Bonds  of  thb  Beb  Link  R.  R. 

Company. 

1884.                                         Bonds  Received. 

Oct. 

10 

Rec'd  from  the  Bee  Line  R.  R. 
Company    per  Jacob  Trusty, 
President,  150  First  Mortgage 
Bonds,  Nos.  1  to  150  inclusive. 
To  be  issued  according  to  the 
terms    of  agreement,    in    in- 
stallments of  ten  each,  upon 
completion  of    ten-mile    sec- 
tions of  said  railroad 

Par  value,  $1,000. 

ISO 

150,000 

Loan  and  trust  companies'  records  of  mortgage  bonds  Of  corpora- 
tions are  made  in  a  book  with  the  ordinary  jourual-rulings,  a  column 
being  added  for  giving  the  number  of  bonds  received  and  issued.  The 
form  on  this  page  represents  the  left-hand,  and  the  forny  on  page  421 
the  right-hand  page  of  such  a  register.  These  books  are  merely  books 
of  record  and  do  not  form  any  part  of  the  gefleral  set  of  books  kept  by 
loan  and  trust  companies. 

Much  of  the  bookkeeping  of  loan  and  trust  companies  is  similar  in 
character  to  that  of  banks  and  bankers  generally.  These  corporations 
often  do  a  large  banking  business,  and  have  dealers  who  keep  running 
accounts.  They  more  generally,  however,  have  the  accounts  of  a  class 
who  do  not  so  frequently  disturb  their  deposits.  Depositors  with  such 
companies  as  a  rule  are  paid  interest  on  their  credit  balances.  This 
requires  a  slight  alteration  in  some  of  the  usual  banking  books  to 
make  them  available.  The  dealers'  or  depositors'  ledgers,  for  instance, 
are  ruled  with  special  columns  for  crediting  interest  on  deposits. 

The  other  records  are  kept  through  the  use  of  an  ordinary  set  of 
double-entry  books.  Of  the  various  trusts  managed  by  such  companies 
there  are  required  to  be  entered  in  the  books  of  account  only  such 
items  as  affect  the  revenues  and  conducting  expenses.  The  "Trust 
Account"  is  a  record  of  the  revenues  arising  from  this  department  of 
the  companies  services,  etc. 


flow   BUSINESS   IS  CONDUCTED. 


421 


Held  in  Trc 
1884. 

ST  AND  Delivered  by  thb 

I,OAN  AND  Trust  Co. 
Bonds  Delivered. 

Oct. 

25 

Delivered 
To   J.   C.   Smith   3   Bonds    at 
market  value  of  $900 

3 

2 
5 

2,7C0 
1,800 
4,600 

To  A.  Goodfellow  2  Bonds  at 

market  value  of  $900 

To  John  Topheavy  5  Bonds  at 
market  value  of  |9Q0 

432  PBACTICAL  BANKING. 


CHAPTER    III. 


THE    POWERS    OF    TRUST    COMPANIES. 


As  we  have  seeu,  trust  conipauies  possess  a  great  variety  of  powers. 
Very  generally  they  transact  a  banking  business,  but  there  is  no  uni- 
formity in  the  additional  functions  exercised  by  them.  In  many  cases 
they  ti'ansact  only  a  banlving  l)usiness.  and  in  doing  this  the  two  chief 
differences  between  such  a  company  and  an  ordinary  banlv  of  discount 
and  deposit  is  the  payment  of  interest  on  deposits  and  the  granting  of 
loans  only  to  persons  who  can  furnish  satisfactory  collateral  securities. 

Again,  as  national  banks  are  rigidly  restricted  in  their  operations 
by  the  national  bank  act,  trust  companies  are  often  organized  in 
places  where  national  Ijanks  i-xist  to  do  many  things  that  are  outside 
their  powers.  For  example,  a  national  Itank  cannot  execute  a  trust; 
its  powers  are  limited  l»y  the  organic  law  to  receiving  deposits,  discount- 
ing notes  and  a  few  minor  functions.  In  one  sense,  to  everj'  bank  or 
agent  is  committed  a  trust  which  it  daily  exercises;  but  the  older  and 
larger  trust  companies,  outside  the  receiving  and  lending  money,  ex- 
ercise a  much  wider  field  than  many  of  the  newer  companies,  and  large 
profits  are  derived  from  these  operations. 

The  powers  of  trust  companies  are  defined  either  by  special  acts  of 
incorporation  or  by  general  laws.  The  older  trust  companies  were 
created  and  exist  by  virtue  of  special  charters.  Many  of  them  possess 
very  extensive  powers.  They  not  only  have  the  right  to  transact  a 
banking  business,  but  also  to  execute  a  great  variety  of  trusts,  to  act 
as  executor  and  administrator  of  estates,  as  guardians,  as  trustees  to 
hold  bonds  and  other  securities,  reorganize  companies,  buy,  sell  and 
lease  property,  to  engage  in  building  enterprises,  and  to  do  many  other 
things. 

One  of  the  earliest  questions  that  arose  concerning  trust  companies 
was  their  capacity  to  act  as  an  administrator,  or  in  any  other  manner 
requiring  an  oath  to  be  taken,  as  corporations  are  not  capable  by  the 
common  law  of  taking  oaths  "  for  the  due  execution  of  the  office."  This 
objection  was  raised  by  the  famous  Blackstone,  but  a  later  authority 
declared  that  it  was  settled  that  "  corporations  can  be  executors,  and 
that  on  their  being  named  they  may  appoint  persons  styled  syndics, 
to  receive  administration   with  the  will  annexed,   who  are  sworn  like 


THE  POWERS   OF   TRUST   COMPANIES.  423 

all  Other  administrators."*  "There  is  then,"  remarlvs  Mr.  Justice  Wales, 
"no  inherent  disability  or  disqualification  belonging  to  a  corporation  as 
such  which  excludes  it  from  acting  as  an  administrator,  and  it  may 
accept  the  office  if  not  prohibited  by  its  charter,  or  forbidden  by 
statute,  whenever  from  the  objects  of  its  incorporation  and  the  nature 
of  its  business  it  may  become  necessary  and  proper,  and  it  is  able  to 
comply  with  the  conditions  prescribed  by  law  as  to  giving  bond,  etc."t 

But  this  opinion  is  not  held  by  all  the  courts.  In  several  States  they 
have  declared  that  a  corporation  cannot  act  as  an  executor,  adminis- 
trator, guardian,  trustee,  etc.,  without  special  legislative  authority.  In 
Maryland  the  recorded  utterance  of  the  courts  is  that  "a  corporation 
cannot  become  an  executor  or  administrator;  nor  has  the  English 
practice  of  allowing  a  corporation,  when  named  executor,  to  designate 
a  person  styled  a  syndic  to  receive  administration  with  the  will  annexed 
ever  prevailed  in  this  State."!  And  this  seems  to  be  regarded  as  the 
common  law  of  New  .Iersey.§ 

But  the  right  of  a  State  to  endow  corporations  with  such  authority 
is  unquestioned.  When,  however,  they  can  be  formed  under  the  general 
laws  of  a  State,  their  creation  by  special  charter  is  often  proliiltited 
by  the  constitution;  on  the  other  liand,  when  the  general  laws  do  not 
provide  for  their  creation,  they  may  be  specially  authorized  by  the 
legislature.!  This  question  was  thoroughly  considered  by  the  Supreme 
Court  of  Minnesota  in  a  case  in  which  the  authority  of  a  corporation  to 
act  as  a  guardian  of  the  estate  of  an  insane  person  was  contested.  In  de- 
livering the  opinion  of  tlie  court  .lustice  Mitchell  remarked:  "To  the  ap- 
l>ointment  of  corporations,  organized  for  that  special  purpose,  under 
well-guarded  statutes,  to  the  position  of  trustee  of  a  trust,  executor  of 
a  will,  administrator  or  guardian  of  an  estate,  or  other  place  of  trust, 
involving  the  custody  and  management  of  property  only,  there  can 
be  no  possible  objection  on  either  constitutional  gi'ounds  or  consider- 
ations of  policy.  The  common  law  grounds  upon  which  it  was  held  that 
corporations  could  not  act  in  any  of  these  fiduciary  capacities  were 
purely  artificial.  The  reason  given  by  Blaclistone  why  a  corporation 
aggregate  could  not  act  as  an  executor  or  administrator  is  that  it  could 
not  take  the  necessary  oath;  but  even  at  common  law,  in  England,  this 
technical  difficulty  was  evaded  by  the  corporation  naming  an  agent, 
called  a  syndic,  to  whom  letters  were  issued.  Moreover,  it  is,  of  course, 
entirely  competent  for  the  legislature  to  dispense  altogether  with  an 
oath  in  such  cases.    Another  reason  often  assigned  why  a  corporation 


*Toller  on  Executors,  30. 

tDeringer's  Ad.  v.  Deringer's  Ad.,  .5  Houston,  430. 

$Reed  v.  Baltimore  Trust  and  (Juarantee  Co.,  72  Md.  531;  George- 
town College  V.  Browne,  34  Md.  175;  Ellicott  Macliine  Co.  v.  Speed.  72 
Md.  22. 

§30  N.  .1.  Eq.  100. 

II Reed  v.  Baltimore  Trust  and  (Juarantee  Co.,  72  Md.  .~>:U. 


424  PRACTICAL  BANKING. 

could  not  act  as  a  trustee  was  tbat  as  a  court  of  equity  often  enforced 
a  trust  by  laying  hold  of  the  conscience  of  the  trustee,  therefore,  inas 
much  as  a  corporation  has  no  conscience,  it  is  qualified  to  act  as  trus- 
tee. The  reason  most  commonly  given  why  a  corporation  could  not 
act  as  trustee,  executor,  guardian,  or  in  other  such  fiduciai\v  capacity, 
was  that  such  an  appointment  involved  a  personal  trust,  and  therefore 
a  corporation  lacked  one  of  the  essential  requisites  of  a  good  trustee- 
personal  confidence.*  But  at  least  as  to  trusts,  technically  so  called, 
this  doctrine  has  long  since  been  exploded,  even  at  common  law,  as  too 
artificial.t  And  there  are  now  numerous  instances  in  which  corpora- 
tions have  been  expressly  empowered  by  statute  to  administer  estates, 
and  neither  the  validity  nor  policy  of  such  legislation  has  ever  before, 
to  our  knowledge,  been  questioned. t  In  fact,  in  many  of  the  States, 
particularly  the  older  ones,  this  is  fast  becoming  the  favorite 
method  of  administering  estates  and  executing  trusts.  The  facts 
that  such  corporations  have  perpetuity  of  existence;  that  they 
are  less  liable  than  natural  persons  to  sudden  fluctuations  of  fortune; 
that,  being  organized  for  that  special  purpose,  they  can  administer 
estates  more  efTicieutly  and  economically,  and  that  in  case  of  large 
estates  it  is  often  difficult  to  find  a  natural  person  who  is  both  able  and 
willing  to  accept  the  trust,  and  give  the  necessary  bonds — have  suggested 
the  necessity  and  created  the  demand  for  such  organizations. 

"The  statute  is  criticised  because  it  does  not  require  the  corporation 
to  take  an  oath  or  give  a  bond,  as  in  the  case  of  natural  persons.  But 
this  is  purely  a  question  for  the  legislature.  If  they  deem  the  se- 
curities deposited  with  the  State  Auditor,  and  the  other  safeguards 
placed  by  the  statute  around  the  organization  and  management  of  such 
corporations  to  insure  the  faithful  execution  of  all  trusts  imposed  upon 
them,  as  an  equivalent  for  the  bond  and  oath  required  of  natural  per- 
sons, thej'  have  the  undoubted  power  to  so  provide.  § 

A  question  of  great  practical  importance  relates  to  the  authority 
of  trust  companies  to  execute  their  peculiar  statutory  powers  outside 
their  own  State  in  another  where  no  such  corporation  exists,  and 
where  the  common  law  right  of  a  corporation  thus  to  act  is  not  clearly 
defined.  This  question  was  well  considered  by  the  Court  of  Errors  and 
Appeals  of  Delaware  twenty  years  ago,  when  the  Fidelity  Insurance, 
Trust  and  Safe  Deposit  Company  of  Pennsylvania  sought  to  act  as 
administrator  of  an  estate  in  Delaware.  Its  authority  to  act  in  this 
capacity  in  Pennsylvania  was  not  questioned,  but  could  it  exercise  the 
same  power  in  Delaware,  since  the  law  did  not  recognize  the  authority 
of  a  corporation  of  its  own  creation  to  act  in  that  manner?     Justice 


♦Perry  on  Trusts,  42. 

tVidal  V.  Girard,  2  How.  127,  187. 

tl  Morrawetz  on  Private  Corporations,  §357. 

§  Minnesota  Loan  and  Trust  Co.  v.  Beebe,  40  Minn  7,  9. 


THE  POWERS  OF  TRUST  COMPANIES.  426 

Wales  remarked:  "^A'lK'n  a  statute  or  the  unwritten  or  common  law 
of  the  State  forbids  the  recognition  of  the  foreign  law,  the  latter  is  of 
no  force  whatever.  When  both  are  silent,  then  the  question  arises, 
which  of  the  conflicting  laws  is  to  have  effect?  Generally,  force  and 
effect  will  be  given  by  any  State  to  foreign  laws  iu  cases  where  from 
the  transactions  of  the  parties  they  are  applicable  unless  they  affect 
injuriously  her  own  citizens,  violate  her  express  enactments,  or  are 
contrary  to  good  morals.  And  courts  of  justice  in  one  State  will,  out  of 
comity,  enforce  the  laws  of  another  state  when  by  such  enforcement 
they  will  not  violate  their  own  laws  or  inflict  an  injury  on  some  one 
of  their  own  citizens."  The  justice  then  cited  with  approval  an  opinion 
expressed  by  Chief  Justice  Waite.  of  the  United  States  Supreme  Court: 
"Upon  principles  of  comity,  the  corporations  of  one  state  are  permitted 
to  do  business  in  another  unless  it  conflicts  with  the  law  or  unjustly 
interferes  with  the  rights  of  the  citizens  of  the  state  into  which  they 
come.  Under  such  circumstances  no  citizen  of  a  state  can  enjoin  a 
foreign  corporation  from  pursuing  its  business."  As  the  Fidelity  Com- 
pany had  power  to  give  tlie  bond  required  by  law  for  administering 
on  the  estate  in  Delaware,  and  as  there  was  no  positive  law.  or  definite 
and  known  state  policy  to  proliibit  or  forbid  its  exercise  of  the  duties 
of  an  administrator,  there  was.  so  the  court  declared,  "no  reason  why  it 
should  not  be  allowed  to  maintain  this  action." 

In  New  Jersey,  however,  the  court  did  not  admit  the  right  of  the 
same  company  to  act  as  an  executor  and  foreclose  a  mortgage  belonging 
to  the  testator,  on  the  filing  of  a  duly  authenticated  copy  of  his  will 
in  the  Surrogate's  office  of  the  county  where  the  land  was  located.* 
The  opinion  was  very  brief  and  did  not  state  the  reasons  fully,  but 
evidently  the  decision  was  based  on  the  ancient  doctrine  that  at  common 
law,  a  corporation  created  within  the  state  could  not  exercise .  such 
powers,  and  a  foreign  corporation  could  not  possess  powers  that  were 
still  greater.  The  decision  was  simply  that  of  the  Chancellor  and 
might  not  have  been  sustained  by  the  higher  court,  but  the  trust  com- 
pany did  not  carry  the  contention  any  further. 

Trust  companies  liave  been  created  with  authority  to  qualify  and 
act  as  the  statutory  guardian  of  infants  on  the  execution  of  their  own 
bond  with  the  pledge  of  its  capital  stock  as  security  for  the  faithful 
discharge  of  its  duties.  The  legality  of  such  power  has  been  questioned, 
but  in  one  of  the  cases  it  was  remarked  that  as  it  was  constitutional 
for  the  legislature  to  confer  on  a  corporation  the  power  to  act  as  a 
statutory  guardian,  it  followed  that  the  legislature  had  the  power  to 
prescribe  the  terms  of  thus  acting.! 


♦Porter  v.  Trail,  .'«)  N.  J.  Eq.  106. 

tJohnson  v.  Johnson,  SS  Ky.  27.");  Coleman's  Admr.  v.  Parrott,  13  S. 
W.  Rep.  .52.5;  Phalan  v.  Louisville  Safety  Vault  and  Trust  Co..  88  Ky. 
24;  Bank  of  Commerce  v.  Payne,  Viley  &  Co.,  8(!  Ky.  446. 


426  PRACtlC:AL  BANKING. 

Furthermore,  when  such  authority  is  granted  to  a  trust  company, 
a  bond  will  not  be  required  in  another  state  where  it  may  be  appointed 
guardian  although  a  bond  and  security  is  required  of  any  person  acting 
there  in  that  capacity.  This  important  point  was  determined  by  the 
Surrogate's  Court  of  New  York  in  the  case  of  a  Pennsylvania  trust 
company  which,  having  been  appointed  guardian  in  its  own  state,  was 
also  appointed  in  New  York  on  the  presentation  of  a  transcript  of  the 
record,  without  giving  any  bond.  The  Surrogate  remarked:  "The 
object  of  a  bond  with  sureties,  under  our  statute,  was  of  course  to  pro- 
vide security  to  the  ward.  As  our  state  has  adopted  the  same  practice 
of  authorizing  corporations  to  receive  such  trusts  without  security,  it 
seems  to  me  that  by  considering  the  act  of  the  legislature  of  the  state  of 
Pennsylvania,  which  is  in  harmony  with  the  practice  in  our  own  state, 
and  provides  that  the  capital  of  such  corporation  with  its  property  and 
effects,  shall  be  deemed  pledged  to  the  right  administration  of  such  a 
trust,  as  equivalent  in  spirit  and  fact  to  a  bond  with  sureties,  this  coiu't 
does  no  violence  to  the  purpose  of  the  act  in  question,  but  thereby 
adopts  a  construction  which  best  accords  with  the  spirit  of  interstate 
comity."f 

A  trustee  for  minor  children  cannot  by  bis  will  bind  a  trust  com- 
pany having  possession  of  the  funds  to  pay  the  income  to  the  guardian 
of  the  children  after  his  death.  Smith  v.  Central  Trust  Co..  42  N.  Y. 
Supp.  740. 

A  trust  company  should  exercise  the  utmost  care  and  fidelity  with 
the  funds  committed  to  its  keeping.  If  those  belonging  to  different 
estates  or  parties  are  used  in  its  own  business,  it  is  chargeable  with 
interest  on  all  at  the  legal  rate.  And  if  tliey  have  been  mingled,  a  pro- 
portionate part  of  each  fund  will  be  regarded  as  used  after  deducting 
the  balance  on  hand.§ 

The  trust  companies  usually  have  fixed  charges  for  most,  if  not  all 
their  services.  This  is  one  reason  why  they  are  more  and  more  em- 
ployed to  act  as  trustees.  Another  is  that  they  usually  have  experienced 
men  to  transact  every  part  of  the  business.  Sometimes,  however,  there 
are  disputes  springing  from  their  charges,  but  only  on  rare  occasions. 
One  of  these  related  to  a  charge  paid  an  agent  for  collecting  rents. 
This  was  held  to  be  proper  charge  by  the  company  and  also  the  premi- 
ums paid  for  keeping  premises  insured  that  were  in  its  charge.* 

Various  questions  have  arisen  on  the  failure  of  trust  companies  con- 
cerning the  rights  of  parties.  When  the  .Tarvis-Couklin  Mortgage  Com- 
pany failed,  a  few  years  ago.  there  was  a  noteworthy  case  brought  by 
a  foreign  mortgage  company  (which  had  sent  a  large  amount  of  money 
to  the  other  to  pay  for  mortgages)   to  establish  a   fiduciary  relation 


Jin  Matter  of  Cordova.  4  Red.  (>6. 

«iSt.  Paul  Trust  Co.  v.  Kittson,  (!2  Minn.  408 

*Garvey  v.  Owens,  3.5  N,  Y.  State  Rep.  133. 


THE  POWERS  OF  TRUST  COMPANIES.  427 

between  the  two  and  thus  secure  the  return  of  its  money  instead  of 
sharing  as  a  general  creditor.  But  the  court  held  that,  under  the  con- 
tract existing  between  the  two  companies,  the  same  relation  existed 
between  them  with  respect  to  the  funds  in  the  possession  of  the 
American  company  belonging  to  the  other,  as  in  the  case  of  an  ordinary 
bank  depositor.! 

When  the  Northwestern  (Guaranty  Loan  Company  failed  there  were 
three  classes  of  claims:  d)  claims  based  on  a  guaranty  of  negotiable 
notes;  (2)  those  based  on  a  guaranty  of  mortgage  notes  securing  the 
debenture  bonds;  (3)  and  those  based  on  the  debenture  bonds.  The 
American  Loan  and  Trust  Company  was  the  trustee  of  a  fund  held  as 
collateral  security  for  the  performance  by  the  Northwestern  company 
of  its  guaranties.  At  the  time  of  creating  this  trust  the  Northwestern 
company  was  engaged  only  in  guarantying  and  selling  corporate  or 
personal  obligations.  Afterward  it  sold  debenture  lionds  for  the  secu- 
rity of  which  it  created  other  trust  funds  under  other  trust  indentures. 
The  trust  fund  held  by  the  American  Trust  Company  was  declared  to 
belong  to  the  claimants  of  the  first  class.t 


t78  Fed.  Rep.  56. 
$44  N,  E.  Rep.  340. 


PART  V. 

BANK  LITERATURE. 


(429) 


BANK  LITERATURE,  431 


CHAPTER  1. 


BANK  LITERATURE. 


We  have  often  been  asked  about  books  relating  to  the  history  and 
methods  of  American  banking,  and  it  is  proposed  in  this  and  the  fol- 
lowing chapter  to  give  some  account  of  the  literature  on  the  subject. 

The  works  that  may  be  first  considered  are  those  of  a  more  formal 
or  didactic  nature  setting  forth  the  principles  relating  to  banking.  Of 
these,  there  are  very  few  wholly  devoted  to  an  exposition  of  banking 
principles.  Generally,  the  subject  is  combined  with  other  subjects, 
as  in  Horace  White's  "Money  ana  Banking."  These  two  subjects  are 
closely  related;  to  understand  the  principles  of  banking  those  of  money 
are  an  indispensable  foundation.  Condy  Raguet's  Treatise  on  Cur- 
rency and  Banking,  a  much  older  work  (published  in  1839)  is  of  some- 
what similar  scope,  and  is  a  va*luable  contribution  to  bank  literature. 
Raguet  and  William  M.  Gouge  were  contemporaries,  both  lived  in 
Philadelphia,  and  were  familiar  with  sound  economic  principles  and 
strenuous  in  the  advocacy  of  them. 

In  many  of  the  American  treatises  on  political  economy  are  chapters 
devoted  to  the  principles  of  banking.  In  the  following  list  most  of 
them  are  included: 

Andrews,  E.  B.— Institutes  of  Economics;  Part  3,  Chapter  2. 

Blair,  D. — Outline  of  Political  Economy. 

Bowen,  F.— Principles  of  Political  Economy;  Chapter  20. 

American  Political  Economy;  Chapters  14,  16. 

Bowker.  R.  R.— Economics  for  the  People;  Chapter  15. 

Brough,  W.— The  Natural  law  of  Money;  Chapters  3-5. 

Carey,  H.  C— Principles  of  Social  Science;  Volume  2,  Chapter  36. 

Champlin,  J.  T.— Lessons  in  Political  Economy;  Chapter  15. 

Chapln,  A.  L.— First  Lessons  in  Political  Economy;  Chapter  4. 

Colwell,  S.— Ways  and  Means  of  Payment;  Chapter  17. 

Conant,  C.  A.— History  of  Modern  Banks  of  Issue;  Chapters  13-15. 

Colton,  C— Public  Economy  for  the  United  States. 

Cooper,  T.— Manual  of  Political  Economy;  Page  82. 


482  PRACTICAL  BANKING. 

Cooper,  T. — Elements  of  Political  Economy;  Chapter  14. 

Davenport,  H.  J.— Outlines  of  t^lementary  Economics;  Chapter  11. 

Denslow,  Van  B.— Principles  of  the  Economic  Philosophy  of  Society. 
Government  and  Industry. 

Dunbar,  C.  F.— Chapters  on  the  Theory  and  History  of  Banking. 

Ely,  R.  T.— Introduction  to  Political  Economy;  Part  3,  Chapter  3. 

Gregory,  J.  M.— New  Political  Economy. 

Hadley,  A.  T.— Economics;  Chapters  7,  8. 

Laughlin,  J.  L. — Elements  of  Political  Economy;  Chapters  29,  30. 

Jennison— Outline  of  Political  Economy;  Page  41. 

Leverson,  R.  M.— Common-sense,  or  First  Steps  in  Political  Econ- 
omy. 

Macvane,  S.  M. — Working  Principles  of  Political  Economy;  Chap- 
ter 15. 

Mason,  A.  B.,  and  Lalor,  J,  J.— Primer  of  Political  Economy. 

McAdam,  G.— An  Alphabet  in  Finance;  Chapters  10,  11,  13,  14,  24. 

Newcomb,  S.— Principles  of  Political  Economy. 

Newman,  S.  P.— Elements  of  Political  Economy;  Chapter  U. 

Opdyke,  G. — A  Treatise  on  Political  Economy ;  Cliapter  5,  section  2. 

Perry,  A.  L.— Principles  of  Political  Economy. 

Introduction  to  Political  Economy. 

Phillips,  W.— Manual  of  Political  Economy;  Chapter  11. 

Pickering,  J.— Workiugman's  Political  Economy. 

Poor,  H.  v.— Money;  its  Laws  and  History. 

Putnam,  O.— Tracts  on  Political  Economy;  Section  6. 

Raymond,  D.— Thoughts  on  Political  Economy;  Part  2,  Chapter  7. 

Richmond,  W.— Christian  Economics. 

Simpson,  S.— The  Workiugman's  Manual;  A  New  Theory  of  Political 
Economy. 

Steele,  S.  M.— Outline  Study  of  Political  Economy. 

Sturtevant,  J.  M.— Economics. 

Thompson,  R.  E.— Social  Science  and  Natural  Economy;  Chapter  8. 

Tucker,  G.— Political  Economy  for  the  People;  Chapter  13. 

Vethake,  H.— Principles  of  Political  Economy;  Book  3. 

Walker,  A— Science  of  W^ealth;  Book  3,  Part  2. 

Walker,  F.  A.— Political  Economy;  Part  6,  Chapter  2. 

Money;  Part  3. 

Money  and  its  Relation  to  Trade  and  Industry;  Chapter  10. 

Ware,  N.  A.— Notes  on  Political  Economy;  Chapter  27. 

Wayland,  F.— Elements  of  Political  Economy;  Chapter  22. 

Weston,  G.  M.— Money. 

It  is  interesting  to  note  the  fuller  development  of  the  principles  of 
banking  in  the  later  works,  in  common  with  the  fuller  development  of 
other  important  economic  principles.  The  next  class  of  works  to  bo 
noticed  are  those  that  treat  of  the  history  of  banking.    At  the  outset 


BANK   LITERATURE.  433 

it  may  be  remarked  that  a  satisfactory  history  of  American  banking 
remains  to  be  written.  Furthermore,  it  will  be  quite  impossible  to  do 
this  until  either  the  National  or  State  governments  collect  the  statistics 
and  other  materials  that  are  now  missing,  growing  out  of  our  banking 
experience.  In  1893  the  Secretary  of  the  Treasury,  by  order  of  the 
Senate,  attempted  to  collect  this  information.  Some  of  it  was  furnished, 
but  in  the  secretary's  report  he  described  the  diflBculties  in  collecting 
it  and  recommended  that  a  special  appropriation  be  made  for  that  pur- 
pose. In  the  early  part  of  the  century  "efforts,"  says  Mr.  Gouge,  "ex- 
tending over  several  years  to  collect  the  accounts  of  the  banks  of  the 
country  had  pi'oved  so  unsatisfactory  in  results,  and  so  little  success 
had  crowned  the  labors  of  Mr.  Crawford,  Mr.  Gallatin  and  Mr.  Niles  m 
the  same  direction  that  it  was  not  thought  worth  while  to  arrange  for 
publication  the  materials  that  had  been  prepared."  There  is  good 
authority  for  the  statement  that  a  later  Secretary  of  the  Treasury,  by 
whose  direction  a  large  and  valuable  body  of  information  was  col- 
lected and  arranged,  declined  to  publish  it,  not  because  it  was  worth 
little,  but  rather  because  it  was  worth  too  much,  and  told  too  much 
against  the  principles  and  purposes  of  his  party.  From  the  materials 
then  collected,  could  a  different  story  have  been  extracted  from  the 
party  point  of  view,  it  would  have  duly  seen  the  light. 

In  1895  was  published  the  History  of  American  Banking,  written 
by  William  G.  Sumner.  The  work  hardly  sustains  the  well-known 
learning  and  industry  of  the  author.  The  fact  that  all  the  important 
banking  history  since  18G0,  the  rise  and  development  of  the  national 
banking  system,  are  swept  over  in  sixteen  pages,  is  enough  to  condemn 
any  work  that  professes  to  be  a  history  of  American  banking.  Perhaps 
the  eminent  author  imagined  that  most  persons  who  would  be  drawn 
to  his  pages  were  familiar  with  the  subject  during  the  last  thirty 
years,  but  this  is  not  a  satisfactory  reason  for  the  omission  of  so  much 
from  a  work  with  such  a  title. 

Another  history  is  by  Mr.  John  Jay  Knox,  who  served  the  govern- 
ment for  an  unusually  long  period  as  Comptroller  of  the  Currency.  It 
was  in  a  very  incomplete  state  at  the  time  of  his  death,  yet  notwith- 
standing the  numerous  gaps,  it  has  appeared  as  a  serial  with  consid- 
erable editions.  It  is  announced  that  it  will  be  published  in  another 
form  with  much  additional  matter;  and  it  is  hoped  that  those  who  are 
in  quest  of  much  that  is  not  now  in  an  accessible  form  will  find  it  in 
the  pages  of  this  work. 

An  older  history,  and  long  since  out  of  print,  is  by  William  M, 
Gouge.  It  is  entitled,  "A  Short  History  of  Paper  Money  and  Banking 
in  the  United  States,"  including  an  account  of  provincial  and  conti- 
nental paper  money,  to  which  is  prefixed  an  inquiry  into  the  principles 
of  the  system,  with  considerations  of  its  effects  on  morals  and  happi- 
ness. The  whole  intended  as  a  plain  exposition  of  the  way  in  which 
paper  money  and  money  corporations  affect  the  interests  of  different 


434  PRACTICAL   BANKING. 

portions  of  the  community.  The  work  is  divided  into  two  parts.  The 
first  is  "an  inquiry  into  the  principles  of  the  American  banliing  system 
with  consideration  of  its  effects  on  morals  and  happiness;"  and  the 
other  is  a  "short  history  of  paper  money  and  banking  in  the  United 
States."  Brief  as  this  history  is,  it  has  been  by  far  the  most  valuable 
source  of  information  for  the  period  it  covers.  It  has  been  a  veritable 
mine  for  many  writers. 

We  have  already  mentioned  Raguet's  "Currency  and  Banking."  This 
is  partly  historical.  He  was  also  editor  of  the  Free  Trade  Advocate 
and  Journal  of  Political  Economy;  devoted  to  the  advancement  of  polit- 
ical science.  This  was  continued  for  two  years.  It  appeared  during 
a  very  important  period  in  our  history,  1829-30. 

There  are  briefer  works  of  a  historical  character,  papers  like  those 
by  Alpheus  Felch  on  "Early  Banks  and  Banking  in  Michigan;"  H.  F. 
Baker  on  "Banks  and  Banking  in  the  United  States;"  Clarence  B, 
Hadden  on  the  "History  of  the  State  Banks  and  Early  Banking  System 
of  Wisconsin;  A.  C.  Bryan's  History  of  State  Banking  in  Maryland." 
Chapters  also  relating  to  banking  will  be  found  in  the  writer's  "Finan- 
cial History  of  the  United  States."  When  preparing  that  work  he  had 
in  view  another  on  the  history  of  American  banking,  but  which  has 
not  been  written  by  reason  of  inaccessibility  of  the  data  above  men- 
tioned needful  for  a  satisfactory  presentation  of  the  subject. 

The  title  of  another  work,  though  of  inferior  merit,  may  be  men- 
tioned. This  is  by  T.  H.  Goddard,  and  is  entitled  "A  General  History 
of  the  most  prominent  banks  in  Europe,  particularly  the  banks  of 
England  and  France;  the  rise  and  progress  of  the  bank  of  North 
America;  a  full  history  of  the  late  and  present  Bank  of  the  United 
States;  to  which  is  added  a  statistical  and  comparative  view  of  the 
moneyed  institutions  of  New  York,  and  twenty-four  other  principal 
cities  of  the  United  States.  Also  A.  Hamilton's  and  McDutfie's  reports 
to  Congress  on  Currency."    It  was  published  in  New  York  in  1831. 

During  the  colonial  days  there  were  a  few  feeble  experiments  in 
banking.  These  are  described  in  the  first  Essays  at  Banking,  and  the 
first  paper  money  in  New  England,  by  J.  Hammond  Trumbull.  (Wor- 
cester, 1884),  and  in  A.  McF.  Davis's  excellent  papers  in  July  and  Oc- 
tober numbers  of  the  Quarterly  Journal  of  Economics  for  1SL>6.  They 
are  entitled,  "Currency  discussion  in  Massachusetts  in  the  Eighteenth 
Century."  The  bibliography  appended  to  "Remarks  on  the  Early  Paper 
Currency  of  Massachusetts,"  by  Nathaniel  Paine,  together  with  the  ad- 
ditions in  the  writings  of  Trumbull  and  Davis  is,  it  is  believed,  quite 
complete  for  that  period,  and  nothing  further  need  be  said  except  to 
mention  "An  Historical  Account  of  Massachusetts  Currency,"  by  Jo- 
seph B.  Felt,  and  Hutchinson's  History  of  Massachusetts. 

Besides  the  works  that  aim  to  be  more  general,  ai-e  others  of  a  local 
character,  the  history  of  various  institutions.  These  are  multiplying. 
Among  the  more  noteworthy  are   Lewis's  "History   of  the   Bank   of 


BANK   LITERATURE.  435 

North  America,"  (1882);  Domett's  "History  of  the  Bank  of  New  York 
from  1784-1884;"  Whitney's  Suffolk  Bank  of  Boston  (1878);  Goddard's 
Bank  of  Kliode  Island;  "Woodward's  Bank  of  Hartford.  These  works 
are  quite  narrow  in  their  scope,  and  do  not  even  incidentally  add  much 
knowledge  to  the  general  history  of  banking.  Each  of  the  institutions 
described  is  a  leading  one  in  its  own  city,  and  if  the  banking  history 
of  the  several  places  had  also  been  included,  still  preserving  the  prom- 
inence of  the  bank  specially  described,  these  works  would  have  pos- 
sessed a  greater  value  and  interested  more  than  the  narrow  circle  for 
whom  they  were  prepared. 

Lastly,  a  brief  reference  may  be  made  to  the  history  of  savings  in 
stitutions.  A  history  from  their  inception  down  to  1877  has  been  writ- 
ten by  E.  W.  Keyes,  formerly  assistant  superintendent  of  banking  for 
the  State  of  New  York.  The  work  is  a  rather  ponderous  affair,  in  two 
volumes,  and  is  a  somewhat  hasty,  superficial  piece  of  work.  The  third 
class  of  works  to  be  mentioned  are  otticial  documents,  reports  made  by 
officers  of  the  National  and  State  governments,  reports  by  committees 
of  the  Legislature,  and  those  of  banking  associations.  For  a  better 
description  they  may  be  divided  into  several  classes. 

The  first  of  these  are  the  annual  or  regular  State  reports,  made  by 
commissioners,  superintendents  or  other  officials  who  exercise  super- 
vision over  the  banks  in  their  respective  States.  Some  of  the  States, 
notably  the  New  England  ones  and  New  York,  have  exercised  such 
supervision  for  many  years,  while  other  States  have  thus  enlarged  their 
functions  within  a  recent  period.  These  reports  vary  greatly  in  value. 
Some  of  them  are  replete  with  information;  others  contain  very  little. 
A  considerable  quantity  of  statistical  matter  is  usually  found  in  them, 
though  the  information  most  wanted  is  too  often  missing. 

The  next  class  of  public  reports  to  be  described  are  those  made  by 
legislative  committees.  Those  prepared  in  the  ordinary  transaction  of 
legislative  business  are  not  of  much  account,  but  there  are  special  re- 
ports growing  out  of  bank  failures  and  radical  changes  in  bank  sys- 
tems that  contain  much  valuable  information.  The  national  reports 
and  other  public  documents  may  be  divided  into  four  classes.  The  first 
class  comprises  those  relating  to  the  first  United  States  bank;  the  sec- 
ond class  to  the  second  United  States  bank;  the  third  class  the  annual 
reports  relating  to  banks  from  1833  to  18G3,  and  lastly  the  reports  of 
the  Comptroller  of  the  Currency  and  other  documents  growing  out  of 
the  system.  In  the  first  class  one  of  the  most  noteworthy  documents 
is  Alexander  Hamilton  s  report  on  a  plan  for  establishing  a  national 
bank.  This  with  many  other  important  reports  are  collected  in  the 
scries  of  American  State  Papers  relating  to  Finance  (5  volumes).  The 
reader  who  is  desirous  of  exploring  into  the  documentary  history  of 
the  second  United  States  bank  can  find  a  ready  reference  to  everything 
in  the  indexes  of  the  various  national  publications.    The  third  class  of 


436  PRACTICAL   BANKING. 

reports  require  brief  notice.  By  a  resolution  of  the  House,  passed  in 
1832,  the  Secretary  of  the  Treasury  was  directed  to  lay  before  that 
body  every  year  statements  or  returns  "showing  the  capital,  circula- 
tion, discounts,  specie,  deposits  and  condition  of  the  different  State 
banks  and  banliing  companies."  This  information  was  to  be  derived 
from  State  reports  and  other  sources.  These  reports  appeared  reg- 
ularly until  18G3,  the  time  of  the  beginning  the  issue  of  the  reports  of 
the  Comptroller  of  the  Currency.  Twenty  years  later  he  was  required 
to  embody  a  considerable  portion  of  this  information  in  his  annual  re- 
port. 

With  respect  to  the  fourth  class  of  public  reports  relating  to  the 
national  banliing  system  nothing  need  be  said.  These  contain  a  vast 
body  of  information,  showing  in  great  detail  the  working  of  every  part 
of  the  system. 

Lastly,  there  remains  for  consideration  the  reports  of  separate 
banks  and  bank  associations.  In  Canada  it  is  the  regular  practice  of  all 
the  banks,  or  all  the  principal  ones,  to  present  printed  reports  of  their 
business  to  their  stockholders.  This  is  an  excellent  practice,  and 
worthy  of  imitation.  An  occasional  report  is  made  by  an  American 
bank,  but  too  often  it  is  delayed  and  appears  as  the  report  of  a  receiver 
who  tells  the  sad  story  of  the  downfall  of  the  institution. 

Bank  associations  of  late  years  have  been  rapidly  multiplying,  and 
while  most  of  the  papers  read  at  these  meetings  are  of  a  practical  char- 
acter, as  they  should  be,  some  are  historical,  especially  the  papers  or 
addresses  that  appear  in  the  proceedings  of  the  associations  of  the 
younger  or  middle-aged  States. 


BIBLIOGRAPHY   OF  WORKS  ON  AMERICAN   BANKINU.  4-3T 


CHAPTER  II. 

BIBLIOGRAPHY  OF  WORKS  ON  AMERICAN  BANKING. 

In  this  chapter  the  titles  will  be  given  to  many  of  the  books  and 
pamphlets  relating  to  American  banking.  The  list  is  not  complete,  for 
it  is  hardly  possible  to  include  all  the  titles  on  such  a  large  subject. 
Cue  of  the  greatest  difticulties  is  to  determines  wliere  a  l)ook  or  pam- 
phlet relates  partly  to  American  banking,  whether  to  include  or  exclude 
it.  There  are  many  that  deal  with  money,  finance  and  banking;  some- 
times one  of  these  topics  is  treated  much  more  prominently  than  the 
other  two;  sometimes  it  receives  lesser  consideration.  Again,  a  book  or 
pamphlet  may  devote  only  a  small  space  to  the  subject,  yet  the  little 
said  may  contain  some  fact,  suggestion  or  remedy  of  much  importance. 
The  pamphlet  literature  is  quite  extensive,  and  while  much  of  it  is  ex- 
tensively barren  and  unscholarly,  many  a  rich  nugget  of  thought  is  em- 
bedded in  some  unattractive,  poorly  printed  pamphlet  that  is  well 
worth  finding. 

The  books  and  pamphlets  of  known  authorship,  or  by  persons  sign- 
ing pseudonyms,  are  arranged  alphabetically,  by  the  names  of  the 
writers;  the  anonymous  ones  are  arranged  under  several  appropriate 
heads.  It  may  be  added  that  the  publications  relating  to  the  United 
States  banks  and  to  the  present  national  banking  system  do  not  include 
the  official  reports  and  other  documents  than  can  be  easily  found  in  the 
indexes  of  national  publications  prepared  by  the  government.  Nor 
is  any  reference  made  to  periodical  literature,  relating  to  the  subject, 
as  this  can  be  easily  traced  in  the  excellent  indexes  covering  nearly  the 
entire  field. 

ABBOTT.  W.  G.— Reasons  why  savings  banks  should  be  taxed  by  the 
State  of  Connecticut. 

- — — Olijections  to  the  taxation  of  savings  l)anks;  1880. 

ADAMS,  -T.  Q.— Spoocli   fsuppri'ssed  by  the  previous  question)  on  the 
removal  of  the  public  deposits  and  the  reasons;  Wasliington,  1834. 

AEGLES.— The  letters    of,    addressed   to   .John    C.    Spooner,    chairman 
of  the  bank  committee,  etc.;  Baltimore,  1819. 

AMICUS  PATRIAE— A  word  of  comfort  to  a  melancholy  country,  or 
the  bank   of  credit   erected   in   the   Xiassachusetts   Ray,    fairly  de- 
feuded   by  a   discovery  of  the  great  benefit  accruing  by  it  to  the 
whole  province:  Boston,  1721. 
29 


438  PRACTICAL  BANKING. 

APPLETON,  N.— Examination  of  the  banking  system  of  Massachusetts 

with  reference  to  the  removal  of  the  baulv  charters;  Boston,  1831. 

Remarks  on  currency  and  banlcing;  Boston,   1841. 

Remarks    on    currency    and    banking,    having    reference    to    the 

present   derangement    of    the    circulating    medium    of    the    United 

States;  Boston,  1857. 
ARISTIDES— A  letter  to  the  Secretary  of  the  Treasury  on  the  com- 
merce and  currency  of  the  United  States;  New  York,  1819. 
Essays    on    the    spirit    of    Jacksonianism    as    exemplified    in    its 

deadly  hostility   to   the  bank   of   the   United    States;   Philadelphia, 

1835 
ATKINSON.  E.— The  banking  principle;  or  banking  in  its  relation  to 

currency;  April,  1895. 
What   is  a  bank?     What   service  does   it  perform?     New  Yoi'k, 

18S0. 
ATTFIELD,  J.  B.— The  l)rancli  l)ank  system. 
ATTICUS— Letters  of,  in  the  currency  and  credit  system,  and  national 

fiscal  agent  of  the   United  States;   1838. 
ATWATER— Considerations    on    the    approaching    dissolution    of    the 

United   States  bank;  New   Haven,    1810. 

BACON,  H.— Basis  of  security  for  national  bank  notes;  Philadelphia. 

BAIRD,  H.  C— The  bank  check  and  not  the  circulating  note  the  great 
monetary  instrument  of  the  age;  Philadelphia.   1873. 

— ^Money  and  bank  credit;  Philadelphia,   1891. 

BAKER,  H.  F.— Banks  and  banking  in  the  United  States;  two  parts; 
Cincinnati.   1854. 

BAKER,  E.  R.— The  subject  of  money  considered;  Winfield,  Kan., 
1888. 

BALDWIN,  L.— Thoughts  on  the  study  of  political  economy  as  con- 
nected with  the  population,  industry  and  paper  currency  of  the 
United  States;  Cambridge.  1809. 

BANK  CRASH— The  present  crisis;  Rochester,  N.  Y.,  1857. 

BANKS,  H.— Sketches  recommending  an  independent  system  of  bank- 
ing; Richmond,  Ya..  1811. 

BARNARD.  D.  D.— Speech  in  the  Assembly  of  Ncav  York  on  banking, 
currency  and  credit  upon  the  passing  of  the  general  banking  law; 
March   29,    1838. 

Speech  in  the  Assembly  of  New  York  on  the  bill  to  replace  the 

law  prohibiting  the  circulation  of  small  bank  notes;  January  9, 
1828. 

BARTOW,  R.— A  true  exposition  of  the  transaction  Avhich  led  to  the 
failure  of  the  late  Franklin  bank;  New  York,  1831. 

BENDER,  J.  S.— Money:     Its  definition  and  tests;  Plymouth,  Md.,  1879. 

BERKEY,  W.  A.— The  money  question:  Legal  tender  paper  money 
system  of  the  Ignited  States;  C.rand  Rapids,  Mich.,  1S7G. 


BIBLIOGRAPHY   OF   WORKS  ON   AMERICAN   BANKING.  439 

BILBO.  W.  N.— An  address  on  banks  and  banking,  delivered  at  Nash- 
ville, Tenn.,  Noa'.  (j,  1857;  Nashville,   1857. 

BLEr)SOE,  J.— Speech  on  the  resolution  proposed  by  hino  concerning 
banks;  Lexington,  1810. 

BLODGET.  S.— Economica:  A  statistical  manual  for  the  United 
States;  Washington,  180(5. 

BOLLES,  A.  S.— National  bank  act  and  its  interpretation. 

Banks  and  their  depositors.     Bank  officers.     Bank  collections. 

BOLLMAN.  E.— Plan  of  an  improved  system  of  the  money  concerns 
of  the  T'nion;  Philadelphia.  181(>. 

Paragraphs   on   banks;    Philadelphia.    1811. 

BT{Al>l'.l'KY.  IL— Security  and  manufacture  of  bank  notes. 

BKADFORI),  S.  D.— An  article  on  the  Boston  banks,  first  publishei? 
in  the  Morning  Post.   March  22,  1838;  Works,  p.  (!7. 

BREWSTER,  A.— An  appeal  to  banks  in  particular  and  the  public  in 
general;  Hartfcnd,   1815. 

BRICE,  S.  M.— Financial  catechism  and  histcjry  of  the  financial  legis- 
lation of  the  T:nited  States;  Chicago,  1882. 

BRINDLE,  W.— Prostration  of  American  industries,  the  cause  and  the 
remedy,  federal  money  vs.  bank  currency;  Nov.  2,  1874. 

BRONSON,  G.— An  appeal  to  the  public;  New  York,   December,   1815. 

BROOKS,  F.  A.— 01)jections  legal  and  practical  to  our  national  cur- 
rency system;  Boston,   1893. 

BROUGH,  W.— Open  mints  and  free  banking;  New  York,  1898. 

BROWN,  W.— Talks  on  paper  currency;  Philadelphia.   1874. 

Thoughts  on  paper  currency  and  lending  on  interest,  as  affecting 

labor,  commerce  and  manufactures;  Philadelphia,   1887. 

BRUTUS— Letters  to  George  M.  DufTie  in  ansAver  to  his  report  sus- 
taining the  bank  of  the  United  States;  Philadelphia,  18.30. 

CAREY,  H.  C— National  iiank  amendment  bill. 

Credit  system  in  France.  Great  Britain  and  United  States;  1820. 

CAREY,  M.— Debates  and  proceedings  of  the  General  Assembly  of 
Pennsylvania,  concerning  a  law  annulling  the  charter  of  the  bank; 
Philadelphia,   1786. 

Debates  and  proceedings  of  the  General  Assembly  of  Pennsyl- 
vania on  the  memorial  praying  a  repeal  or  suspension  of  the  law 
annulling  the  charter  of  the  bank;  1806. 

To    the    stockholders    of    the    bank    of    North    America    on    the 

subject  of  old  and  new  banks;  Philadelphia.  1791. 

Letters  to  bank  directors  on  the  pernicious  consequences  of  the 

prevailing  system  of  banking  operations;  Philadelphia.  1816. 

Letters  to  the  directors  of  the  lianks  of  Pliiladclphia  on  reduc- 
ing the  amount  of  bills  discounted;  Philadelphia,  1816. 

■ —Reflections  on  the  consequences  of  the  refusal  of  the  banks  to 

receive  on  deposit  Southern  and  Western  bank  notes;  Phildadel- 
phia,    1815. 


440  PRACTICAL  BANKING. 

CAREY,  M. — Reflections  on  the  present  system  of  banking  in  Philapelphia, 

second   edition;   Philadelphia,   1817. 
. Nine  letters  to  A.  Seybert  on  the  renewal  of  the  charter  of  the 

United  States  bank;  Philadelphia,  ISIO. 
Desultory     retiections     upon     the     ruinous     consequences     of     a 


non-renewal  of  the  charter,  second  edition;  Philadelphia,  1810. 
A  letter  to  the  Hon.  M.  Calhoun,  chairman  of  the  committee  on 

a   national   currency;   Philadelphia,    1816.     With   an   appendix   by 

Slatius. 

— Essays  on  bankina-;  Philadelphia.  1817. 

CAREY.  T.  G.— Letter  on  the  supposed  failure  of  a  national  bank,  the 

supposed  delinquency  of  the  national  government,  the  debts  of  the 

several  States  and  repudiation;  Boston,  1844,  second  edition. 

A  practical  view  of   the  busine.ss  of  banking;   December,    1845. 

CITIZEN— An  appeal  to  the  public  on  the  conduct  of  the  banks  in  the 

city    of   New   York.    December   ISlo. 
CLARKE,  M.  ST.  C.  and  HALL,  D.  A.— Legislative  and  documentary 

history  of  the  bank  of  the  United   States,   including  the  original 

bank  of  North  America;  Washington,  1832. 
CLAY'TON,  A.  S.— Review  of  the  report  of  the  committee  of  ways  and 

means,   to   whom   was   referred   so   much   of   tlie   message   of  tlie 

President  as  relates  to  the  bank  of  the  Ignited  States;  Milledgeville, 

Ga.,  1830. 
CLEVELAND.   J.— .\ccount   of   the  New  York   Clearing   House;   New 

York,  1857. 

Banking  System  of  the  State  of  New  York,  New  York,  1857. 

CLEBBORN.   T.— Outline  of  the  American  banking  system;  London, 

1837. 
COE,  G.  S.— New  York  Clearing  House  Association,  its  relation  to  gold 

and  silver  currency:  1878  and  1885. 
GOLDEN,  C.  D.— Speech  of,  in  the  Senate  of  New   York  on   the  bill 

for  the  repeal  of  the  laws  proliibiting  private  banking;  Albany,  1825. 
COLEMAN,  J.— The  distressed  state  of  the  town  of  Boston.     With  a 

scheme  for  a  bank  laid  down;  Boston,  1720. 
The   distressed    state   of   the    town    of    Boston    once    more    con- 
sidered;  Boston,    1720. 
COLWELL,  S.— Ways  and  means  of  payment;  a  full  analysis  of  the 

credit  system;  Philadelphia,  1S5JJ. 
COODY'.  A.— Letter  to  the  Hon.  Samuel  L.  Mitchell  on  the  danger  of 

putting  money   in  the  United   States  and    .Manhattan  banks;   New 

York,    1811. 
COMMONWEALTH   BANK— Refutation  of  the  calumnies  against  D. 

Henshaw  in  relation  to  the  failure  of  the  bank;  Boston,  1844. 
• Henshaw's  reply  to  the  report  of  the  legislative  committee  for 

investigating  the  concerns  of  the  Commonwealth  bank;  Boston,  183H. 
CONANT.  C.  A.— Banking  assets  as  a  basis  for  circulation. 


BIBLIOGRAPHY   OF   WORKS   ON   AMERICAN   BANKING.  441 

CORN  WELL,  W.  C— The  currency  and  the  banking  hiws  of  the  Do- 
minion of  Canada  cousidcn'd  with  reference  to  currency  reform  in 
the  United  States;  New  York,   1895. 

Branch  banks.  lUiftalo,  N.  Y. 

CUNNINGHAM,  W.— Use  and  abuse  of  money;  New  York,  1891. 

BANNER,  A.  C— Correspondence  relative  to  the  affairs  of  the  bank 
of  Mobile,  1884. 

DAYIES,  B.— Bank  torpedo,  or  bank  notes  proved  to  be  a  robbery  on 
the  public;  New  York,  1810. 

Bank  notes  proved  to  be  a  robbery. 

DAYIS.  R.  M.— Public  and  private  credit  and  banking  and  their 
abuses;  New  Orleans.  1809. 

DAWES.  C.  G.— The  banking  system  of  the  United  States  and  its 
relation  to  the  money  and  business  interests  of  the  country;  Chi- 
cago.   1894. 

DEAN,  S.— History  of  banking  and  banks  from  the  Bank  of  Yenice 
in  1171  to  the  year  1883;  New  York,  188.S. 

DEGRAND,  P.  P.  F.— Meeting  of  the  friends  of  a  national  bank; 
Boston.  July  15.  1841. 

DELMAR,  A.— The  national  ])anking  system;  New  York.  1805. 

DERBY,  E.  H.— The  history  of  paper  money  in  the  province  of  Mas- 
sachusetts before  the  revolution,  with  an  account  of  the  land  bank 
and  the  silver  bank;  Boston.  1874. 

DOMETT,  H.  W.— A  history  of  the  bank  of  New  York,  1784-1884; 
New  York,   1884. 

DUANE,  W.  .T.— Narrative  and  correspondence  concerning  the  removal 
of  the  deposit  from  the  bank  of  the  United  States;  New  York.  1831. 

Letters  addressed  to  the  people  of  the  United  States  in  vindica- 
tion of  liis  conduct;  1834. 

DUDLEY.  T.— Objections  to  the  bank  of  credit  lately  projected  at 
Boston;  Boston,  1714.* 

DUKE,  B.  W.— History  of  banking  in  Kentucky;  1895. 

DUNCOMBE,  C— An  essay  on  banking,  currency,  finance,  exchanges 
and  political  economj-;  Cleveland,  O.,  1841. 

DURETT,  R.  S.— Early  banking  in  Kentucky,  proceeilings  of  Ken- 
tucky  Bankers'    Association;   1892. 

EADIE,   J.— Financial   economy;   being    an   inquiry    into    the   present 

state  of  the  monetary  service;  New  York,   18(55. 
ELLIOT,  J.— Funding  system  of  the  United  States;  Washington,  1845. 


*Trumbull  says:  "Of  nearly  thirty  pamphlets  and  tracts  printed 
from  1714  to  1721,  inclusive,  for  and  against  a  private  bank  or  a  pub- 
lic liank.  the  emission  of  bills  of  credit,  and  paper  currency  in  general, 
tliis  of  Mr.  Dudley's  Avas  the  tirst,  and  is  in  some  respects  the  ablest.*' 
The  first  essays  at  banking;  Worcester,  1884. 


442  PRACTICAL  BANKING. 

FISK.  T.— The  banking  bubble  burst;  or  the  mammoth  corruptions  of 
the  paper  money  system  relieved  l)y  bleeding:  Charleston,  S.  C, 
1837. 

FLAGG,  A.  C— Banks  and  banking  in  the  State  of  New  York,  from 
the  adoption  of  the  Constitution  in  1777  to  1864;  Brooklyn,  1868. 

FLANNAGAN,  W.  W.- Security  for  national  bank  deposits;  1885. 

FOOT,  S.  A.— Arugment  in  favor  of  the  constitutionality  of  the  gen- 
eral banking  law  of  New  York;  GencA^a;  1839. 

FOOTE,  A.  R.— A  sound  currency  and  banking  system;  how  it  may 
be  secured;  New  I'ork. 

GAGE.   L.   J.— Banks  and   banking  in   Illinois.     World's   Congress  of 

Banlcers  and  Finance. 
GALLATIN,   A.— On  the  renewal  of  the  charter  of  the  bank  of  the 

United  States;  March  2,  1809. 
Suggestions  on   the  banks   and   currency  of   the    several   United 

States;  New  York,  1841. 
Considerations    on    the    currency    and    banking    systems    of    the 


United  States;  Fhiladelphia    1881. 

GALLATIN,  J.— The  proposed  United  States  banking  system  and 
further  issues  of  legal  tender;  New  York,   1863. 

The   national   debt,    taxation,   currency    and   banking   system   of 

the  United   States;  New  York,   1864. 

The  national  finances,  currency,  banking,  etc.,  being  a  reply  to 

A.  S.  Hooper's  speech;  New  Y'ork,  1864. 

The    public    debt,    banking    and    currency    and    finances    of    the 

United  States;  New  York,  1866. 

GIBBONS,  J.  S.— Banks  of  New  York;  their  dealers,  the  clearing 
house,  and  the  panic  of  1857;  New  York,  1873. 

GILES,  W.  B.— Public  credit-bank  scheme  reprinted  from  the  Rich- 
mond Enquirer.  March  20,  1824;  Political  Miscellanies,  No.  30. 

GILMAN,  T.— A  graded  banking  system,  formed  by  the  incorporation 
of  clearing  houses  under  a  federal  law;  New  York.  1898. 

GILPIN,  H.  D.— The  memorial  of  H.  D.  Gilpin  J.  T.  Sullivan  and  P. 
Wager,  of  Pennsylvania,  and  H.  M.  Elderry,  of  Maryland,  direc- 
tors of  the  bank  of  the  United  States;  1838. 

GORDON,  A.  C— An  outline  of  the  federal  money  system;  New 
York,    1895. 

GORDON,  T.  F.— The  war  on  the  bank  of  the  United  States;  or  a 
review  of  the  measures  of  the  administration  against  that  institu- 
tion and  the  prosperity  of  the  country;  Philadelphia,  1884. 

GOODWELL,  GODEX— Currency ;  the  evil  and  the  remedy;  New 
York.    1846. 

GOUGE,  W.  M.— The  true  principles  of  commercial  banking.  Re- 
printed in  .lournal  of  Banking,  originally  published  in  the  Demo- 
cratic  Review. 

The  banks   of  the   United   States,   a   communication   from,    read 

before  the  New  York  board  of  currency. 


BIBLIOGRAPHY   OF   WORKS   ON   AMERICAN  BANKING.  443 

GOUGE,  W.  M.— The  Journal  of  Banking  from  July,  1841,  to  July,  1842; 
Philadelphia,  1842. 

An  inquiry  into  the  expediency  of  dispensing?  with  bank  agency 

and  bank  paper  In  the  fiscal  concerns  of  the  United  States;  Phila- 
delphia,  1837. 

GRANT,  R.— A  new  theory  for  an  independent  treasury;  or,  an  ex- 
planation of  the  causes  of  the  late  fluctuations  in  our  currency, 
with  a  proposition  for  an  efficient  remedy;  Bangor,  1840. 

CRASOX.  W.,  Governor  of  Marjdand— Annual  message  of,  relating 
chiefly  to  bjuiking  and    tariff   (luestions;   1S42. 

GREENE,  W.  B.— The  radical  deficiency  of  the  existing  circulating 
medium  and  the  advantages  of  a  mutual  currency;  Boston,  1857. 
Other  editions.  West  Brookfield,  1850;  Worcester.  1870. 

HADDEN,  C.  B.— History  of  the  State  banks  and  early  banking 
system    of    Wisconsin. 

HALE,  N.— Remarks  on  the  banks  and  the  currency  of  the  New 
England   States;  Boston,   1826. 

HALE,  W.  H.— An  inquiry  into  the  origin  and  effect  of  banking  and 
paper  money;  New  Turk.  18o3. 

HAMILTON,  A.— Argument  upon  the  constitutionality  of  a  national 
bank;   1790, 

A    letter    on    banks    and    the    currency;    proposing    the    creation 

of  a  State  bank  of  issues,  and  the  restriction  of  private  banks  to 
circnlation,  discounting  and  deposits;  New  York:  1839. 

HANDY,  W.  A.— Banking  system  of  the  world;  an  impartial  statement 
of  the  conditions  of  note  issue  by  banks  in  all  nations,  and  the 
working  of  the  systems;  also  postal  savings  banks;  Chicago,  1897. 

HARE,  R.— Suggestions  respecting  the  reformation  of  the  banking  sys- 
tem; Philadelphia,  1837. 

Proof   that    credit   as    money    in   a   truly   free   country   is   to   a 

great  extent  preferable  to  coin.  Abstracts  from  a  pamphlet  pub- 
lished in  1810  and  revised  by  the  author;  Philadelphia,  1834. 

Injury   done   by   prohibition   of    bills    under   five   dollars;    Phila- 


delphia, 1841. 

HASKINS,  W.  L.— Considerations  on  the  project  and  institution  of  a 
guarantee  company,  on  a  new  plan,  with  some  general  views  on 
credit,   confidence  and   currency;   New   York,    1837. 

HARTER,  M.  D.— American  banking  and  the  money  supply  of  the 
future;  Philadelphia. 

HEPBURN,  A.  B.— State  and  national  bank  circulation;  Philadelphia. 

HEYN.  E.  T.— Postal  savings  banks;  Philadelphia,  1896. 

HILDRETH,  R.— History  of  banks  and  necessity  of  free  banking;  Bos- 
ton,   1837. 

Banks,     banking   and     paper     currencies,     in     three     parts:      1. 

History  of  banking  and  paper  money;  2.  Argument  for  a  free  com- 
petition in  banking;  3.  Apology  for  one  dollar  notes;  Boston,  1840, 


444  PRACTICAL  BANKING. 

HILDRETH.  R. — A  letter  on  banking  and  the  currency;  Boston,  1840. 
HILL,  B.  A.— Absolute  money;  System  of  national  finance;  St.  Louis, 

1875. 
HILL.  T.  E.— Money  found,  brought  into  absolutely  reliable  government 

banks;  Chicago,  1894. 
HINE,  L.  A.— The  national  banks.    The  system  unmasked;  April,  1869. 
HOAR,  E.  R.— Opinion  of,  as  Attorney-General,  relative  to  the  powers 

of  national  banks  in  voluntary  liquidation;  Washington,  1869. 
IIODGE.  "W.  L.— The  public  debt,  the  currency,   specie  payments  and 

national  banks;  Vrashington,  1807. 
HOOPER,  S.— Currency  or  money;  its  nature  and  uses  and  effects  of  the 

circulation  of  bank  notes  for  currency;  Boston,  1855. 
Examination     of     the     theory    and    effects    of    laws    regulating 

the  amount  of  specie  in  banks;  Boston,  1860. 
HOPKINS,  S.  M.— Speech  of,  in  the  New  York  Senate,  on  taxing  bank 

stock;  Albany,  1822. 
HOTCHKISS,  P.  B.— Banks  and  banking,  1171-1888;  New  York,  1888. 
HUGHES,  R.  W.— Popular  treatise  on  the  currency  question  from  a 

Southern  point  of  view;  New  York;  1879. 

■ The  American  dollar;  Richmond.  Va..  1855. 

HURD,  J.  R.— A  national  bank  or  no  bank;  New  York,  1842. 

IRWIN,  W.  W.— Reasons  for  voting  against  the  act  to  incorporate  the 
fiscal  bank  of  the  United  States,  August.  1841;  Washington,  1841. 

JANNEY,  J.  J.— State  bank  of  Ohio;  1885. 

JOHNSON,  A.  B.— Inquiry  into  the  nature  of  value  and  of  capital,  and 

into  the  operation  of  government  loans,   banking  institutions  and 

private  credit;  New  Y'ork,   1813. 
Speech     before     a     meeting     of     Democratic     citizens    of    Utica 

on  the  subject  of  the  United  States  bank,  March  25,  1834;  Utica,  1834. 

Bankers'  common-place  book. 

JOHNSON,  R.— Memorial  to  the  Legislature  of  Maryland  on  the  bank 

of  Maryland;  Baltimore,  1840. 
J.  K.— A  plan  for  a  national  currency;  New  York. 
JONES,  W.— A  friendly  monitor;  Philadelphia,  Dec.  15,  1819.     Re-pub- 
lished Sept.  17,  1822. 
Memorial     of,     relating     to     the     bank     of    the    United    States; 

Washington,   1819. 
JOHNSON— Review  of  the  veto.     Containing  an  examination  of   the 

principles  of  the  President's  message,  and  his  objections  to  the  bill 

to    modify   and    continue    the    act    rechartering    the   bank    of    the 

United  States;  Philadelphia,  1832. 
JOHNSTON,    J.— Banking    in    Wisconsin.      Proceedings    of    American 

Banking  Association,  18—,  Vol.  23. 


BIBLIOGRAPHY  OF  WORKS  ON   AMERICAN  BANKING.  445 

•TT'DSON,  E.  B.— Letter  to  the  national  ])anks,  by  E.  J.  Judson  and 
other  uieinbers  of  the  Executive  Banking  Association,  relating  to 
bank  taxation;  New  York,  March  14,  1870. 

KEYES,  E.  W.— Review  of  the  opinion  of  the  Attorney-General  of  the 
United  States  concerning  the  dissolution  of  uatioual  banks  and  their 
reorganization  under  the  laws  of  this  State;  Albany,  1869. 

KENDALL'S  Expositor  for  1841,  containing  an  epitome  upon  currency, 
exchanges,  the  tariff  and  other  topics;  Washington,  1841.     Vol.  1. 

LOW,  T.— Address  on  the  question:  "What  ought  to  bo  the  circulating 
medium    of    a    nation?"    Washington,    1830. 

■ Address  on  a   moneyed  .system;   Washington,    1828. 

Plan  for  a  national  currency;  Washington.  1833. 

LAWSON,  W.  J.— The  history  of  banking;  with  a  comparative  account 
of  the  origin,  rise  and  progress  of  the  liauks  of  England,  Scotland 
and  Ireland.  First  American  edition.  Revised  and  enlarged  by  I. 
S.  Thomas;  Boston,  18.52. 

LAWRENCE,  W.  B.— The  bank  of  the  United  States;  Boston,  1831. 

LEE,  H.,  and  others— Exposition  of  facts,  etc..  in  support  of  a  memorial 
to  the  Legislature  in  favor  of  a  bank  of  ten  millions;  Boston,  183G. 

LEGGETT,  S.— The  explanation  and  vindication  of  Samuel  Leggett,  late 
president  of  the  Fiauldiu  bank  of  tiie  city  of  New  York;  new  York, 
1831. 

LEWIS,  L.,  Jr.— A  history  of  the  bank  of  North  America;  Philadelphia. 
1882. 

LLOYD,  T.— Robbery  of  the  bank  of  Pennsylvania  in  1798;  Philadelphia, 
1808. 

LO'NGPRE,  J.— An  answer  to  the  report  of  the  committee  of  stock- 
holders of  the  Louisiana  bank,  concerning  the  deflcit  and  over- 
omission  discovered  in  that  institution;  New  Orleans.  1820. 

LORD,  E.— Principles  of  currency  and  banking;  New  York,  1829. 

Credit,  currency  and  banking;  New  York,  1834. 

National  currency:   A  review  of  the  national  banking  law;  New 

York,    1863. 

LOVELASS,  P. — A  full,  clear  and  familiar  explanation  of  the  Ian-  con- 
cerning bills  of  exchange,  promissory  notes  and  the  evidence  on  a 
trial  by  jury  relative  thereto,  with  a  description  of  bank  notes  and 
the  privilege  of  attorneys;  Philadelphia,  1791. 

LOWELL,  J.  A.— Review  of  Mr.  Hooper's  pamphlet  on  specie  reserves; 
Boston.    1800. 

L0WNI)E:S— Letters  in  1841  to  J.  C.  Calhoun  on  a  national  bank;  New 
York.   1843. 

M.  B.  C— Remarks  on  New  York  banking,  and  the  recent  disaster  or 
crisis  respecting  it;  New  York,  1858. 


446  PRACTICAL  BANKINa. 

MARSH,  C.  C— The  theory  and  practice  of  bank  bookkeeping,  and 

joint  stock  accounts;  New  York,  1881. 

Maverick  National  Bank  manual;  Boston,  July  1,  1887. 

MAYNARD,  W.  H.— A  speech  delivered  in  the  New  York  Senate  on  the 

resolution  against  renewing  the  charter  of  the  bank  of  the  United 

States,  Feb.  4,  1832;  Albany,  1832. 
McGregor,  J.  p.— Historical  sketch  of  State  banking  in  Wisconsin. 

In  Snyder.  Van  Vechten  &  Co.'s  historical  atlas  of  Wisconsin. 
McPHERSON,  L.  G.— The  monetary  and  banking  problem;  New  York, 

189G. 
McVICKER,  PROF.— A  national  bank;  its  necessity,  and  most  advisable 

form;  New  York,  18-11. 
Hints   on    banking;    New    York,    1827.      This   pamphlet   contains 

the  germ  of  the  present  national  bank  system. 
MEASE,  J.— On  the  utility  of  public  loan  officers  and  saving  funds; 

Philadelphia,  1S3G 
MIDDLETON,  H.— The  government  and  the  currency;  New  York,  1850. 
MILON,  M.  R.— Gold  and  free  banks.     Ways  to  arrive  at  the  demone- 
tization of  gold  and  silver,  and  upon  the  establishment  of  private 

banks  under  the  control  of  the  national  government;  New  York,  1875. 
MORAN,  C— Money,  currencies  and  banking;  New  York,  1875. 
An    attempt    to    analyze    and   discuss   the   subject    of   money    in 

its  most  important  practical  phases;  New  York.  1803. 
MORSE,  J.  T.— Treatise  on  the  law  relating  to  banks  and  banking,  two 

volumes;   Boston. 
MORRIS,  J.  B.,  and  GILL,  R.  W.— Extract  from  the  correspondence 

and  minutes  of  the  trustees  relating  to  the  hank  of  Maryland. 
MOULTON,    L.   V. — The   sciences    of   money   and    American   finances; 

Grand  Rapids.  Mich..  1880. 
MUELLER,  C.  G,— Observations  on  the  present  banking  system  and 

showing   its   inconvenience   as   a   currency  among   the  people,    and 

showing   how   banks   ought   to   be,    either   mercantile   or   national; 

Frankfort,  Ky..  1819. 
MURRAY,  J.  B.  C— History  of  usury;  Philadelphia,  1866. 

OAKSMITH,  A,— Southern  State  debts  and  the  national  currency  sys- 
tem; their  evils  and  their  remedy;  Baltimoi*e.  1873. 

OBERHOLTZER.  SARA  L.— School  savings  banks;  Philadelphia. 

O'BRIEN.  D.— Opinion  of,  as  Attorney-General  of  New  York,  relative  to 
the  right  of  the  New  York  savings  l)anks  to  invest  their  deposits  in 
bonds  of  Georgia;  September  21,  1885. 

OBSERVER,  AN— A  peep  into  the  Itanks  and  a  glance  at  the  conse- 
quences of  creating  moneyed  institutions;  New  York,  1828. 

OGDEX,  J.  De  P.— The  crisis  and  the  remedy;  New  York.  1842. 

Additional     remarks     on     the    currency    of    the    United    States; 

New   York,    1841. 


BIBLIOGRAPHY   OF   WORKS'  ON   AMERICAN   BANKING.  447 

OGDEN,  J.  C.  p.— Remarks  on  the  cunency  of  the  United  States; 
New   York,   1S40-41. 

OLCOTT.  H.  S.— A  letter  on  the  taxation  of  loans  as  caiwtal  to  the  com- 
missioners of  interua-l  revenne,  in  behalf  of  the  bankers  and  brokers 
of  New  York;  New  Y'ork,  1809. 

OPDY''KE,  G.— Report  on  the  currency;  New  York,  1858. 

PAINE,  T.— Dissertations  on  the  government,  on  the  bank,  and  on 
paper  money;  Philadelphia,  178(5. 

PATTEN.  C.  C— Methods  and  machinery  of  practical  banking;  New 
York,    1884. 

PERKINS,  S.  H.— Bank  notes  and  specie  as  circulating  medium;  Bos- 
ton.   1856. 

PERSPECTIVE — The  changery;  an  allegoric  memoir  of  the  Boston 
exchange  office;  or,  liank  speculation  unveiled;  Boston.   1805. 

PELON,  M.  R.— Gold  and  free  banks. 

POLITICUS— An  impartial  inquiry  into  Certain  parts  of  the  conduct 
of  Governor  Lewis,  and  of  a  portion  of  the  Legislature,  particularly 
in  relation  to  the  Merchants  bank,  in  a  letter  to  the  Republicans 
of  the  State  of  New  York,  with  an  appendix  containing  important 
documents:  New  Y'ork,  1806. 

POTTER,  O.  B.— Plan  for  appreciating  the  national  bank  notes  to  the 
value  of  coin  witliout  diminishing  the  volume  of  the  currency;  New 
York,  1875. 

PRATT,  A.  S.— Laws  of  the  State  of  New  York  relating  to  banks, 
banking,  and  trust  companies:  New  York.  1880. 

PUBLICOLA- -Letter  to  M.  Gallatin,  1815;  Gouge,  3. 

PULLAN,  R.  B.— Theory  of  money  and  currency;  Washington.  1878. 

RAFINESQUE,  C.  S.— Safe  l)anking,  including  the  priiKij)les  of  wealth; 

Philadelphia.  18;J7. 
RAGUET,  C.— Currency  and  banking;  IMiiladelphia,  1830. 

Remarks  upon  usury:  A  national  bank  a  remedy;  New  York.  1841. 

—Remarks  on  the  banks  and  currency  of  the  New  P]ngland  States; 

Boston,  1826. 
An  inquiry  into  the  causes  of  the  present  state  of  the  circulating 

medium  of  the  United  States;  Philadelphia.  1815. 
Report  of,  to  the  Senate  of  Pennsylvania,  on  the  history  of  the 


monetary  crisis  of  1818. 
REED,  S.  B.— Sketch  of  the  early  history  of  l)anking  in  Vermont;  1870. 
RICHARDSON,  W.  A.-I'.anking  laws  of  Massachusetts;  Lowell.  1855. 
RICHARDSON,  N.  W.— The  national  banks;  New  York,  1880. 
RICHARDSON.    D.    M.— Policy   of   finance.      A    plan   for   returning   to 

specie  payments  and  fre<>  banking;  Washington.  1874. 
RIPLEY,  A.  L.— Currency  and  State  banks;  New  York.  1805. 


448  PRACTICAL  BANKING. 

RC'T,  L.  C— New  York  bank  currency. 

KOOT.  L.  C,  and  WHITE,  H.— The  second  United  States  bank. 

New  England  bank  currency. 

States  as  bankers, 

The  first  United  States  bank. 

The  world's  bank  note  systems. 


ROYALL,  W.  L.— Andrew  Jackson  tmd  the  bank  of  the  United  States; 
New  York,  1880. 

RUFFIN,  E.— The  bank  reformers;  Fetersburg.  Va..  1842.  Observa- 
tions on  the  abuses  of  the  banking  system;  Petersburg,  Va..  1841. 

SALOMONS,  M.— Monetary  difficulties  of  America  and  their  probable 
effects  on  British  commerce  considered;  London,  1837. 

SCOTT,  S.  M.— The  sub-treasury  plan  and  the  land  and  loan  system; 
Topeka,   Kan.,   18'J1. 

SCUDDER,  M.  L.,  Jr.— National  banking,  a  discussion  of  the  merits 
of  the  present  system;  New  York.  1879. 

SEAMAN,  E.  C— Argument  on  judicial  legislation  and  tlie  general  bank- 
ing laws  of  Michigan:  Detroit.   1844. 

SEWARD,  W.  H.— Speech  of,  in  the  New  York  Senate,  on  the  resolu- 
tion against  renewing  the  charter  of  the  United  States  Ijank;  Albany, 
1832. 

SILEX— Letters  on  banks  and  banking  containing  an  account  of  the 
operations  of  the  special  banking  system  o»f  New  England,  with  a 
letter  on  the  gold  question;  Boston,  1853. 

SMITH,  T,— Essay  on  currency  and  banking;  Philadelphia,  1832. 

SMITH,  J.— Banking  and  the  currency;  Indianapolis,  1855. 

SMITH,  R.  D.— Principles  of  safe  banking  applied  to  trusb  companies; 
Boston,   1884. 

SPAULDING,  E.  G.— One  hundred  .rears  of  progress  in  the  business  of 
banking;  Buffalo,  187(>. 

SPOONER,  L.— A  new  banking  system;  Boston.  1873. 

• Considerations  for  bankers  and  holders  of  United   States  bonds; 

Boston,    1864. 

A  new  system  of  paper  currency;  Boston,  18G1. 


STEARNS,  6.  L.— A  few   facts  pertaining  to  currency   and   banking; 

Washington,  18G4. 
ST.    JOHN,    W.    P.— The    public    welfare    and    the    imperiled    national 

banks;  1883. 
Earning  value  to  a  national  bank  of  the  proposed  two  and  a  half 

per  cent,   bond;   1883. 
STEVENS,  W.  B.— The  taxation  of  State  banks;  Boston,   1805. 
STILLWELLr-A  Sketch  of  the  remarks  of,  in  the  New  York  Ass(>ml)ly 

on  a  resolution  relating  to  the  destruction  of  the  United  States  l)ank; 

Albany,  Feb.  7,  1832. 


BIBLIOGRAPHY  OF  WORKS  ON  AMERICAN  BANKING.  449 

SULLIVAN,  J.— Path  to  riches:  An  iuquiry  into  the  origin  and  use  of 
money  and  into  the  principles  of  stocks  and  banks,  to  which  are  sub- 
joined some  thoughts  respecting  a  bank  for  the  commonwealth; 
Boston,  1792.     Another  edition,  1809. 

SULLIVAN,  J.  L.— Considerations  favorable  to  a  State's  national  bank; 
New  Haven,  1838. 

SULLIVAN,  G.— Popular  explanation  of  the  system  of  circulating 
medium  recently  published  in  the  form  of  an  act  of  Congress,  show- 
ing the  destructive  action  of  the  Bank  of  England  on  the  welfare  of 
the  United  States;  New  York,  1839. 

SUMNEK,  W,  G.— A  history  of  American  currency;  New  York.  1884. 

TAIT,  J.  S.— National  banks  and  government  circulation  retrospec- 
tive and  prospective;  New  York,  1888. 

TALLMADGE.  N.  P.— Speech  in  the  Senate  of  New  York.  February. 
1832,  on  the  renewal  of  the  charter  of  the  United  States  bank. 

TEACKLE — Report  of,  on  the  memorial  of  sundry  citizens  praying  the 
establishment  of  a  States'  bank  to  be  founded  upon  the  invested 
money  in  the  treasury,  December,  1830;  Annapolis,   1831. 

TEAl).  E.  L.— A  talk  on  banking  and  money;  Boston,  1880, 

TRUMBULL,  J.  H.— The  first  essays  at  banking  and  the  first  paper 
money  in  New  England;  Gloucester,  1884. 

Report  from  American  Antique  Society;  Oct.  21,  1884. 

TL'CKER,  G.— The  theory  of  money  and  banivs  investigated;  Boston. 
1839. 

UMHA— Considerations  on  the  bank  of  the  United  States;  Albany.  1832, 

VAN  BUREN,  GOV.— Message  on  the  subject  of  banks;  .Tan,  26.  1829. 

VAN  VECHTEN,  A.— Speech  on  increasing  the  number  of  banks  in  New- 
York;  Albany,  1811. 

VIDE— A  peep  into  the  bank;  New  York,  1828.     Gouge,  53. 

VIRGINIAN— Reflections  exicted  by  the  present  state  of  banking  opera- 
tions in  the  I'nited  States;  Washington  City.  1812. 

WALKER,  A.— Nature  and  uses  of  money  and  mixed  currency;  Bos- 
ton.  1857. 

Bank  bill  or  paper  currency  and  the  banking  system  of  Massa- 
chusetts; Boston,   1856. 

Our  national  currency  and  the  money  problem;  Boston,  1876. 

WALKER,  J.  H.— Banking  system,  old  and  new;  Philadelphia. 

A  few  facts  and  suggestions  on  money,  trade  and  banking;  Bos- 
ton,   1882. 

W.^lRNER,  J  DE  W.— Practical  bank  currency. 

WATKTNS.  T.— The  letters  of  Negles,  addressed  to  .Tuhn  C.  Spencer, 
chairman  of  the  bank  committee,  in  which  are  contained  an  exam- 
ination of  the  report  of  that  committee,  and  a  complete  refutation 
of  every  charge  against  the  directors  of  the  bank;  Baltimore,  1819. 


450  PRACTICAL  BANKING. 

WATT,  P.— Theory  and  practice  of  joint  stock  bauliing;  New  York,  1S3G. 

WEBSTER,  P.— An  essay  on  credit  in  wliicli  tlie  doctrine  of  banks  is 
considered;  Philadelphia,  1786. 

Reasons  for  repealing  the  act  of  the  Legislature  of  Pennsylvania, 

which  took  away  the  charter  of  the  bank  of  North  America;  Phila- 
delphia,  1786. 

Political  essays  on  the   nature  and   operation   of  money,   public 

finances  and  other  subjects;   Philadelphia,   1791. 

WEBSTER,  N.— Miscellaneous  papers  on  political  and  commercial  sub- 
jects; New  York,  1802. 

WESTRUP,  A.  B.— The  new  philosophy  of  money;  a  practical  treatise 
on  the  nature  and  ofiice  of  money,  and  the  correct  method  of  its 
supply;  Minneapolis,  1895. 

WHITE,  H.— National  and  State  banks;  a  plan  for  continuing  the 
national  bank-note  system  without  bond  security;  Philadelphia,  189-. 

WHITE,  J.— Cashier  of  United  States  branch  liank  at  Baltimore.  Let- 
ter to  the  Secretary  of  the  Treasury  on  banking;  Feb.  15,  1830. 

WHITEHOOK— Remarks  upon  usury  and  its  effects;  a  national  bank 
a  remedy;  in  a  letter,  etc.;  New  York. 

WHITNEY.  R.  M.— Memorial  of,  to  the  House  of  Representatives,  in  re- 
lation to  the  charges  made  against  him  as  a  witness  before  the  com- 
mittee of  investigation  into  the  affairs  of  the  bank  of  United  States 
by  the  minority  of  that  committee  and  by  a  member  of  tliat  minor- 
ity; Washington,  1832. 

WHITNEY,  D.  R.— The  Suffolk  l)ank;  Cambridge,  1878. 

WHIPPLE,  J.— Free  trade  in  money,  or  note-shaving— the  great  cause 
of  fraud,  poverty  and  ruin;  Boston^  1855. 

WILLIAMS,  J.  E.— Report  on  the  national  bank  currency  act;  New 
York,    1863. 

The  war  loans  of  the  associated  banks  of  the  government  in  1861. 

WILLIAMS,  S.— A  New  York  view  of  finance  and  banking;  1873. 

WILLIAMS,  H.— Remarks  on  banks  and  banking;  Boston,  1840. 

AVILLIAMS,  H.  W.— Money  and  bank  credits  in  the  United  States; 
Philadelphia,  1895. 

WILLSON,  H.  B.— Currency;  or,  the  fundamental  principles  of  mone- 
tary science;  New  York,  1882. 

A  plea  for  Uncle  Sam's  money,  or  greenbacks  versus  bank  notes; 

New  York,   1870. 

WILSON,  G.,  Jr.— How  to  abolish  the  national  bank  system;  St.  Louis, 
Mo.,  1879. 

National  banking  examined;  Kansas  City,  1880. 

The  bank  notes  of  the  future;  Lexington,  Mo..  1878. 

WILSON,  J.— Considerations  on  the  bank  of  North  America;  Works, 
volume  3,  1804. 

WOLCOTT,  A.— Our  national  currency,  the  treasury  notes  of  the  gov- 
ernment and  the  issues  of  the  national  i)anks;  I'liiladelphia,  1866. 


BIBLIOGRAPHY   OF   WORKS   ON   AMERICAN   BANKING.  451 

WOODWARD— One  huutlred  years  of  the  Hart  lord   bauk. 

WKAY,  J.— Dangers  of  au  entire  repeal  of  tlie  bank  restriction  aet.     In 

Pamphleteer;  1818. 
WRIGHT,  GOV.  J.  A.— Speech  of,  on  the  bank  fraud  case  delivered  in 
the  Indiana  Senate  chamber;  March  9,  1857. 

COLONIAL  BANKING. 

A  proposal  for  erecting  a  fund  of  land,  by  authority,  or  private  per- 
sons in  the  nature  of  a  money  bank;  or  merchandise  lumber,  to  pass 
credit  upon  by  book  entries  or  bills  of  exchange,  for  great  payments, 
and  change  bills  for  running  cash  about  1667. 

Severals  relating  to  the  fund.  Printed  for  divers  reasons,  as  may 
appear;  Boston,  1681. 

A  model  for  erecting  a  bank  of  credit;  adapted  especially  for  planta- 
tions in  America;  London,  1688. 

A  project  for  erecting  a  bank  of  credit  in  Boston,  founded  on  land 
security;  1714. 

A  letter  from  one  in  Bostou  to  his  friends  in  the  country;  1714. 

Letter  from  one  in  Boston  to  his  friend  in  the  country  in  answer 
to  a  letter  to  John  Burrill,  etc.;  Boston,  1714. 

A  vindication  of  the  bank  of  credit  projected  in  Boston;  1714. 

Some  considerations  upon  the  several  sorts  of  banks  proposed  as  a 
medium  of  trade;  Boston,  1716. 

Letter  from  a  country  gentleman  at  Boston  to  his  friends,  on  the 
land  bank;  Boston,  1740. 

A  letter  to ,  merchant  in  London,  concerning  a  late  combination 

in  the  province  of  Massachusetts  Bay  to  impose  or  force  a  private  cur- 
rency called  land  bank  money;  1741. 

An  account  of  the  use,  progress  and  consequences  of  the  land  bank 
and  silver  schemes  in  the  province  of  Massachusetts  Bay;  Boston.  1744. 

Sketch  of  a  plan  for  a  reformation  in  the  system  of  provincial  bank- 
ing in  pamphleteer;  1821. 

See  the  alphabetical  list,  also  the  previous  chapter,  for  an  account 
of  the  bibliography  on  colonial  banking. 

SECOND   UNITED   STATES  BANK. 

Report  on  the  condition  of  the  bank;  Philadelphia,  1822. 

Observations  on  the  bank  of  the  United  States;  Annapolis. 

Bank  of  the  United  States.  Exhibit  of  losses  at  Baltimore,  etc.;  Bal- 
timore, 1823. 

Report  of  the  proceedings  of  the  triennial  meeting  of  the  stockhold- 
ers of  the  bank  of  the  United  States;  September,  1828. 

Remarks  upon  the  bank  of  the  United  States,  being  an  examina- 
tioii  of  the  report  of  the  committee  of  ways  and  means,  made  to  Con- 
grtss  April,  1830;  Boston,  1831. 


452  PRACTICAL   BANKING. 

Review  of  the  report  of  the  committee  of  ways  and  means  and  of 
the  message  of  the  President  of  the  United  States,  relative  to  the 
United  States  bank;  Philadelphia,  1831. 

The  bank  of  the  United  States;  Boston,  1831. 

Considerations  on  the  bank  of  the  United  States,  in  which  its  repug- 
nance to  the  constitution,  its  hostility  to  the  rights  of  the  States  and 
the  liberties  of  the  citizens  are  briefly  discussed;  Albany,  1832. 

United  States  bank,  veto  message  from  the  President  of  the  United 
States  returning  the  bank  bill  with  his  objections,  etc.;  also  Mr. 
Benton's  victory  over  Clay,  Webster,  etc.;  July  10,  1832. 

The  memorial  of  Henry  D.  Gilpin  and  others,  directors  of  the  bank 
of  the  United  States;  Dec.  19,  1833. 

The  war  on  the  bank  of  the  United  States;  or  a  review  of  the  meas- 
ures of  the  administration  against  that  institution  and  the  prosperity 
of  the  country;  Philadelphia,  1834. 

War  on  the  bank  of  the  United  States;  review  of  the  measures  of  the 
administration;  Philadelphia,  1834. 

Bank  drafts,  letter  from  the  Secretary  of  the  Treasury  communi- 
cating correspondence  with  the  president  of  the  bank  of  the  United 
States,  in  relation  to  bank  drafts;  Dec.  27,  1834. 

Memorial  of  the  Philadelphia  chamber  of  commerce  to  the  Congress 
of  the  United  States  relating  to  the  United  States  bank;  Philadelphia, 
1834. 

Letters  to  Levi  Woodbury,  Secretary  of  the  Treasury;  New  York, 
1837. 

Nicholas  Biddle  and  the  bank  loans  and  discounts. 

General  Jackson  vetoed;  being  review  of  the  veto  message  on  the 
bank  of  the  United  States. 

Report  of  the  committee  of  investigation  appointed  at  the  meet- 
ing of  the  stockholders  of  the  bank  of  the  United  States,  Jan.  4,  1841; 
Philadelphia,  1841. 

Report  of  the  auditors  appoiuteu  to  make  distribution  of  funds  of 
trustees  of  the  banks  of  the  United  States.    Philadelphia,  1841. 

Report  of  the  auditors  appointed  to  make  distribution  of  the  balance 
in  the  hands  of  the  trustees  of  the  bank  of  the  United  States;  Phila- 
delphia, 1852. 

Memorial  of  the  chamber  of  commerce  of  the  city  of  New  York  for 
a  national  bank;  May,  1841. 

Proceedings  of  the  friends  of  a  national  bank,  Boston,  July  15,  1841; 
Boston,  1841. 

Reasons  for  the  inexpediency  of  chartering  a  national  bank;  New 
York.   1841. 

Reasons  for  the  expediency  of  chartering  a  national  bank;  1841. 

Letters  on  currency  matters,  to  the  people  of  the  United  States; 
1841. 


BIBLIOGRAPHY   OF  WORKS  ON  AMERICAN  BANKING.  453 

A  national  bank;  its  necessity  and  most  advisable  form;  New 
York,  1841. 

A  national  exchange  in  a  series  of  essays,  addressed  to  Congress 
on  the  question  of  a  fiscal  agent;  Philadelphia,  1842. 

A  national  exchange;  Philadelphia.  1842. 

Bank  or  no  bank;  Washington,  1844. 

Essay  on  the  evils  of  the  banking  system  of  the  United  States; 
Philadelphia,  1845. 

Uni*^3d  States  banks  with  their  location  and  capital  and  the  names 
of  the  presidents  and  cashiers;  New  York,  1848. 

What  banks  are  constitutional?  184-. 

Mutual  benefit  building  and  loan  associations;  their  history,  prin- 
ciples and  plan  of  operation;  Charleston,  1852. 

BANKING   IN   GENERAL,    NATIONAL   AND   STATE. 

Proceedings  of  the  meeting  in  relation  to  the  establishment  of  a 
large  national  bank  in  this  city;  New  York,  1863. 

New  national  banking  system;  or  government  paper  money;  186-. 

The  appeal  of  poverty-stricken  bankers  for  help;  Milwaukee,  1877. 

New  England  check  clearing  house;  1885. 

Postal  savings  banks  for  the  United  States;  New  York,  1885. 

Letter  of  the  Secretary  of  the  Treasury  *  *  *  relative  to  banking 
statistics  of  State  banks,  banking  institutions,  savings  banks  and  na- 
tional banks,  etc.,  periods  of  1830  and  1863,  respectively;  W^ashington, 
1893, 

The  advantages    of  the  national  banking  system. 

A  bold  swindler  and  his  ways.  Letters  from  banks  relative  to  the 
operations  of  Lewis  P.  Haven. 

A  defiant  bank  swindler  and  how  to  suppress  him. 

Suggestions  respecting  a  reformation  of  the  banking  system. 

Circulating  medium,  etc.    "What  shall  I  do  to  be  saved." 

Observations  on  the  nature  and  use  of  paper  credit,  including  pro- 
posals for  a  national  bank;  Philadelphia,  1781. 

Letters  on  common  sense  respecting  the  State  bank  and  paper  cur- 
rency; Raleigh,  N.  C,  1811. 

Proceedings  of  the  stockholders  of  the  bank  of  the  United  States, 
preparatory  to  the  creation  of  a  trust  for  closing  the  concerns;  Phila- 
delphia, 1811. 

Concise  observations  on  the  propriety  of  incorporating  new  banks; 
Philadelphia,  1812. 

Remarks  on  money;  Philadelphia,  1814. 

History  of  a  little  Frenchman  and  his  bank  notes;  Philadelphia,  1815. 

Proposition  relating  to  the  national  circulating  medium.  Made  by 
the   Secretary  of  the  Treasury;  December  6,  1815. 


454  PRACTICAL  BANKING. 

An  appeal  to  the  public  on  the  conduct  of  the  banks  in  the  city  of 
New  York.    By  a  citizen;  New  York,  December.  1815. 

Inquiry  into  the  causes  of  the  present  state  of  the  circulating  me- 
dium; Philadelphia,  August,  1815. 

Appeal  to  the  public  on  the  conduct  of  the  banks  of  New  York;  New 
York,  1815. 

Letter  to  Calhoun  on  taxing  banks  for  not  paying  specie;  Phila- 
de'phia,  1816. 

National  currency.  Dialogues  relating  to  banking;  Washington; 
Nov.  26.  1818. 

Reflections  excited  by  the  present  state  of  banking  operations  in  the 
United  States;  Washington,  1818. 

Remarks  on  private  banking,  addressed  to  I.  Pierson;  New  York, 
1818. 

Cause  of  and  cure  for  hard  times  containing  a  definition  of  the  attri- 
butes indispensable  in  money  as  a  medium  of  commerce;  New  York, 
1818. 

Letter  from  a  merchant  to  a  farmer,  and  the  abuse  and  advantage 
of  banks;  Baltimore,  1826. 

Observations  on  the  state  of  the  currency  with  suggestions  for 
equalizing  its  value  and  reducing  to  uniformity  the  banking  system  in 
the  United  States;  Jan.  1,  1829. 

An  inquiry  into  the  nature  and  necessity  of  a  paper  currency;  Phil- 
adelphia, 1729. 

Currency  and  the  principles  of  banking;  Albany,  1830. 

Defense  of  country  banks,  a  reply  to  examination  of  the  banking 
system   of  Massachusetts;  Boston,  1831. 

Banks  and  a  paper  currency:  Their  effects  upon  society;  Philadel- 
phia, 1832. 

Outline  of  a  plan  for  a  national  bank  with  incidental  remarks  on  the 
bank  of  the  United  States;  New  York,  1833. 

Report  of  the  committee  on  banks  in  the  House  of  Representa- 
tives; January,  1833. 

Suggestions  for  the  organization  of  a  national  bank;  New  Orleans, 
1834. 

Report  of  the  "Union  Committee"  appointed  by  the  meeting  of  the 
signers  of  the  memorial  to  Congress,  held  Feb.  11,  1834;  New  York, 
1834. 

An  inquiry  into  the  causes  of  the  public  distress;  New  York,  1834. 

Thoughts  on  banking  and  the  currency.  By  a  citizen  of  western 
New  York;  Seneca  Falls;  1836. 

Suggestions  respecting  the  reformation  of  the  banking  system; 
Philadelphia    1837. 


BIBLIOGRAPHY   OF   WORKS  ON   AMERICAN   BANKING.  455 

Labor  the  only  true  source  of  wealth;  rottenness  of  the  paper 
money  banking  system,  oration;  Charleston,  Mass.,  1837. 

A  brief  outline  for  a  national  bank  by  a  native  citizen;  Cincinnati, 
Sept.  19,  1837. 

A  new  financial  project,  together  with  some  remarks  upon  the  cur- 
rency and  credit  system  of  the  United  States;  New  York.  1837. 

Review  of  Senator  Davis's  speech  against  the  independent  treasury 
bill.    From  Worcester  Palladium;  1838. 

An  exposition  of  the  course  and  principles  of  the  national  adminis- 
tration in  relation  to  the  custody  of  the  public  moneys;  Philadelphia, 
1838. 

The  remedy,  in  a  national  bank  of  the  people  versus  a  treasury  bank 
and  a  national  bank  of  a  party.  An  appeal  to  the  people  of  the  United 
States  with  a  plan  by  an  American  citizen;  New  York,  1838. 

A  national  bank  for  the  people,  upon  the  only  true  principle  of  bank- 
ing in  a  free  republic;  New  York,  1838. 

Dissertations  on  government,  the  affairs  of  the  bank  and  paper 
money.    By  the  author  of  common  sense;  Philadelphia,  1838. 

Money  and  banking:  or  their  nature  and  effects  considered,  together 
with  a  plan  for  the  universal  diffusion  of  their  legitimate  benefits  with- 
out their  evils.    By  a  citizen  of  Ohio;  Cincinnati,  1839. 

The  highly  interesting  and  important  trial  of  Dr.  T.  W.  Dyott,  the 
baiiker,  for  fraudulent  insolvency;  April,  1839. 

Two  concluding  articles  of  an  observer  (against  a  national  bank); 
183-. 

Remarks  on  banks  and  banking  and  the  skeleton  of  a  project  for  a 
national  bank;  Boston,  1840. 

Proceedings  of  the  friends  of  a  national  bank  at  their  public  meet- 
ing, held  in  Boston,  July  15,  1841.  including  an  address  to  the  people 
of  the  United  States;  Boston,  1841. 


STATE  BANKING. 

CONNECTICUT— Answer  of  the  board  of  directors  of  the  city  bank, 
by  their  agents,  to  the  report  of  the  committee  of  investigation,  made 
to  the  General  Assembly,  May  session,  1837;  Hartford,  1837. 

KENTUCKY— Bank  of  Kentucky,  cnarter  1834,  list  of  the  present 
holders  of  the  original  stock  in  the  bank;  Louisville,  1841. 

Memorial  of  the  president  and  directors  of  the  bank  of  Kentucky  in 
relation  to  the  report  of  the  joint  committee  on  banks;  Frankfort,  1841. 

Report  of  the  joint  committee  on  banks;  1842. 

Response  to  the  joint  committee  on  banks;  1840. 

An  act  granting  certain  powers  to  the  bank  of  Kentucky. 


456  PRACTICAL  BANKING. 

MARYLAND— Brief  exposition  of  the  principles  of  a  bank,  sub- 
mitted to  the  Legislature  of  Maryland;  Baltimore,  1795. 

Report  of  the  select  committee  to  which  was  referred  the  memorials 
and  petitions  of  great  numbers  of  citizens  of  different  counties  praying 
the  establishment  of  a  financial  institution  under  the  style  of  the  bank 
of  the  State  of  Maryland;  Annapolis,  December,  1831. 

A  brief  exposition  of  matters  relating  to  the  bank  of  Maryland; 
Baltimore,  1834. 

Bank  of  Maryland.  Report  of  the  bank  of  Maryland  vs.  Samuel 
Poultney  and  William  M.  EUicott.  Tried  before  Harford  county  court, 
March  term,  1836. 

MISSISSIPPI— Governor's  message  to  the  Legislature  of  the  State 
of  Mississippi,  accompanying  the  report  of  the  bank  commissioners; 
Jackson,  1838. 

Mississippi  legislative  report  of  the  committee  on  the  Union  bank 
bonds;  Jackson,  1842. 

MASSACHUSETTS— The  asylum  bank,  addressed  to  the  Legisla- 
ture and  the  benevolently  disposed  of  every  class;  Boston,  May,  1816. 

Remarks  on  the  banks  and  currency  of  the  New  England  States; 
Boston,  1826. 

Report  of  committee  relative  to  banks  and  to  the  law  against 
usury;  Boston,  1834. 

An  exposition  of  facts  and  arguments  in  support  of  a  memorial  to 
the  Legislature  of  Massachusetts,  by  citizens  of  Boston  and  vicinity 
in  favor  of  a  bank  of  ten  millions;  Boston,  1836. 

Schedule  exhibiting  the  condition  of  the  banks  in  Massachusetts 
for  every  year  from  1803  to  1837. 

Schedule  exhibiting  the  condition  of  banks,  1803-37;  Boston,  1838. 

Abstract  exhibiting  the  condition  of  the  banks  in  Massachusetts, 
February,  1838,  to  September,  1848;  Boston,  1838-48. 

Report  of  a  committee  of  the  House  of  Representatives  on  the  sus- 
pension of  specie  payments;  1838. 

Report  of  the  committee  of  the  Senate  to  consider  what  policy 
should  be  adopted  in  the  recharter  and  incorporation  of  banks;  Boston, 
1851. 

A  letter  to  Governor  Clifford  on  the  proposition  now  before  the 
Legislature  to  require  the  banks  of  the  commonwealth  to  hold  in  de- 
posit a  certain  amount  of  specie.    By  a  practical  banker;  Boston,  1853. 

A  correspondence  between  the  Suffolk  and  Exchange  banks,  Boston, 
on  redeeming  the  bills  of  the  country  banks;  Boston,  1854. 

Report  upon  the  subject  of  bank  notes,  made  to  the  executive  com- 
mittee of  the  association  of  banks  for  the  suppression  of  counterfeiting, 
May.  1854;  Boston,  1854. 

Massachusetts  family  bank;  1875. 


BIBLIOGRAPHY   OF   WORKS  ON  AMERICAN   BANKING.  457 

NEW  JERSEY— A  democratic  view  of  the  true  policy  of  New  Jersey 
and  of  baniis  on  a  specie  basis,  compared  with  those  on  the  basis  of 
the  paper  promises  of  States;  Camden,  N.  J.,  1855. 

NEW  YORK— Report  of  a  legislative  committee  on  banking;  1818. 

Report  and  observations  on  the  banks  in  New  York;  New  York,  1828. 

An  examination  of  some  of  the  provisions  of  the  "act  to  create  a 
fund  for  the  benefit  of  the  creditors  of  certain  moneyed  corporations 
and  for  other  purposes."  Passed  April,  1829,  particularly  as  to  its 
effects  in  the  city  of  New  York;  New  York,  1829. 

The  remedy.  State  banks  unconstitutional;  New  York,  November, 
1837. 

Lockport  bank  investigation;  New  York,  Dec.  1,  1837. 

Minutes  of  the  proceedings  of  the  bank  convention  held  In  the  city 
of  New  York,  Nov.  27,  1837;  New  York,  1837. 

Examination  of  the  charges  of  the  board  of  trade  against  the  Phenix 
bank;  New  York,  1838. 

Report  in  the  Senate  of  New  York  of  the  select  committee  on  so 
much  of  the  Governor's  message  as  relates  to  the  repeal  of  the  re- 
straining laws  and  free  competition  in  the  business  of  banking;  April 
9,  1838. 

Message  from  the  Governor  of  New  York  in  relation  to  the  resump- 
tion of  specie  payments  by  the  banks  of  this  State;  April  12,  1838. 

Report  on  the  subject  of  paying  interest  on  current  deposits  present- 
ed to  the  banks  in  New  York;  New  York,  1858. 

Report  of  the  loan  committee  of  the  associated  banks  of  the  city  of 
New  York,  June  12,  1862;  New  York,  1862. 

Proceedings  of  a  meeting  of  the  New  York  Clearing  House  Associa- 
tion, held  June  23,  1803,  including  a  report  of  the  tax  committee,  and 
the  opinion  of  B.  D.  Silliman;  1863. 

Report  of  the  majority  of  the  committee  on  banks  to  the  Legislature, 
April  1,  1864;  Albany,  1864. 

Report  to  the  New  York  Clearing  House  Association  of  a  committee 
upon  reforms  in  the  banking  business;  1873. 

Proceedings  of  the  New  York  Clearing  House  Association,  June  4, 
1884.    Address  of  George  S.  Coe;  1884. 

PENNSYLVANIA— Considerations  on  the  bank  of  North  America; 
Philadelphia,  1785. 

Remarks  on  considerations  on  the  bank  of  North  America;  Philadel- 
phia, 1785. 

Address  to  the  General  Assembly  of  Pennsylvania  on  the  abolition 
of  the  bank  charter;  Philadelphia,  1785. 

Debates  and  proceedings  on  the  memorials  praying  a  repeal  of  the 
law  annulling  the  charter;  Philadelphia,  1786. 

Legislative  report  on  the  causes  and  extent  of  the  present  general 
distress,  Condy  Raguet,  chairman,  Jan.  29,  1820. 


458  PRACTICAL   BANKING. 

Report  of  legislative  committee  on  the  renewal  of  bank  charters, 
Condy  Ragnet,  chairman.  Jan.  15.  1821. 

Report  of  committee  to  examine  into  the  state  of  the  bank  of  Penn- 
sylvania, and  the  Philadelphia  bank;  Harrisburg,  1829. 

Abstract  of  the  report  of  the  joint  committee  of  the  Legislature  ap- 
pointed to  examine  into  the  state  of  the  bank  of  Pennsylvania.  With 
remarks  and  explanations  and  a  review  of  the  report  of  the  bank  com- 
mittee by  the  State  directors;  Philadelphia,  1829. 

Majority  and  minority  reports  of  a  joint  committee  of  the  Pennsyl- 
vania Legislature  "relative  to  an  investigation  into  any  corrupt  means 
which  may  have  been  employed  by  the  banks,  or  their  agents,  for  the 
purpose  of  influencing  the  action  of  the  Legislature,  or  any  other  de- 
partment of  the  government  in  regard  to  and  legislation  for  their  ben- 
efit, accompanied  with  testimony;"  Harrisburg,  1842. 

Report  of  the  board  of  directors  of  the  bank  of  Pennsylvania  to  the 
stockholders  at  their  annual  meeting;  Feb.  1,  1858. 

Report  of  the  auditor  general  relative  to  the  free  banking  law  of 
Pennsylvania;  1865. 

RHODE  ISLAND— Report  of  legislative  committee  to  inquire  into 
the  situation  of  the  Farmers'  Exchange  bank  of  Gloucester;  March 
20.  1809. 

SOUTH  CAROLINA— Bank  of  South  Carolina.  Report  of  the  pres- 
ident and  directors;  1819. 

Bank  of  the  State  of  South  Carolina.  Compilation  of  all  acts  and 
documents  concerning  it,  1812-1847;  Columbia,  1848. 

The  First  National  bank  of  Charleston,  S.  C.  Account  of  the  bank; 
1884. 

TENNESSEE— Bank  of  Tennessee.  Reports  on  condition,  1853- 
1861.    Five  vols.;  Nashville,  1853-'61. 

VIRGINIA— Bank  of  Virginia.    Proceedings,  etc.;  Richmond,  1844. 
Bank  of  Washington,  D.  C.     Acts,  by-laws  and  reports,  1810-1843; 
Washington,  1810-1843. 

TAXATION—  Taxation  of  bank  shares  in  the  city  of  New  York. 
Report  of  the  tax  committee  of  the  New  York,   Boston  and   Phil- 
adelphia Clearing  House  Associations  upon  the  acts  of  Congress  relat- 
ing to  banks  organized  by  or  under  State  authorities;  New  York,  1863. 

An  appeal  to  Congress  on  the  bank  tax  and  bank  currency,  by  a 
committee  of  New  Jersey  State  bank  officers;  Trenton,  N.  J.,  1864. 

Report  of  the  committee  of  bank  officers  of  the  city  of  New  York  in 
relation  to  bank  taxation;  Oct.  29,  1875. 

A  statement  showing  the  federal  laws  now  in  force  taxing  savings 
banks— how  they  operate  in  different  sections  of  the  country  and  why 
they  should  be  repealed;  Washington,  1877. 


BIBLIOGRAPHY   OF   WORKS   ON   AMERICAN   BANKING.  459 

Report  of  the  tax  committee  on  the  recent  decision  of  the  Supreme 
Court  of  the  United  States  in  the  case  of  Boyer  v.  Boyer;  June  9,  1885. 

NATIONAL  BANKS — Banliing  associations  and  uniform  currency 

bill,  with  extracts  from  reports  of  Secretary  of  the  Treasury  submitted 
to  Congress  in  December,  1861  and  1862. 

Some  strictures  on  an  act  to  provide  a  national  currency  secured  by 
a  pledge  of  United  States  stocks;  Boston,  1863. 

A  reply  to  the  report  of  a  committee  of  the  New  York  Clearing 
House  Association  of  the  national  bank  currency  act;  1864. 

The  fetate  and  national  banks.  Important  correspondence  between 
bank  officers  and  the  controller;  Albany,  1864. 

Correspondence  between  the  controller  of  the  currency  and  First 
National  bank  of  Marlboro,  Mass.,  relating  to  charges  for  examin- 
ations; Boston,  1867. 

The  national  banks.  The  system  unmasked,  greenbacks  forever; 
1869, 

PERIODICALS,  ETC.— Financial  Register  of  the  United  States,  de- 
voted chiefly  to  finance  and  currency,  and  to  banking  and  commer- 
cial statistics,  two  vols.    From  July,  1837,  to  Dec,  1838. 

Free  Trade  Advocate  and  Journal  of  Political  Economy.  Edited 
by  Condy  Raguet.     Two  vols.;  Philadelphia,  1829-30. 

Banker's  Magazine  and  Statistical  Register. 

The  American  Banker. 

RECENT  AMERICAN   WORKS. 

CANNON,  J.  J.— Clearing-houses.     Their  history,  methods  and  admin- 
istration. 

DAVIS,  ANDREW  McFARLAND.— Currency  and  banking  in  the  prov- 
ince of  Massachusetts  Bay. 

DILWORTH,  J.   A.   B.— Free  banking. 

EASTON,  H.  T.— The  work  of  a  bank. 

OILMAN,  T.— A  graded  banking  system. 
Federal  Clearing  Houses. 

HANDY,  W.  M.— Banking  systems  of  the  world. 

HARDENBROOK,  W.  TEN  EYCK.— Financial  New  York.     A  history 
of  the  banking  and  financial  institutions  of  the  meti'opolis. 

KNOX,  J.  J.— Histoiy  of  Banking. 

MICHIE.— Banking  Cases. 

NEAL. — Modern  banking  and  bank  accounting. 


460  -  PRACTICAL  BANKING. 

PACKARD,  S.  S,— Bank  bookkeeping. 

ROLLINS,  AL— Laws  regulating  the  investment  of  bank  funds. 

SELOVER,  T.— The  law  relating  to  bank  collections. 

SMITH,  H.  H.— Digest  of  all  the  decisions  relating  to  national  banlcs. 

TREADWELL,  J.  W.— Evils  of  government  savings  banks. 

WALBERT,  — .  — .    —Coming  battle.     History  of  the  uationul  banking 
money  poAver  of  the  United  States. 

ZANE,  J.  M. — Laws  of  banks  and  banking. 


APPENDIX. 


(461) 


BANKING   AS  A   PROFESSION   FOR  YOUNG  MEN.  463 


BANKING    AS    A    PROFESSION    FOR    YOUNG    MEN.* 


It  is  generally  true  in  mercantile  life  and  in  the  learned  professions, 
and  always  true  in  bauliing,  that  in  order  to  insure  success,  a  young 
man  must  have  some  end  in  view  towards  which  all  his  exertions  shall 
tend.  Every  young  man  should  have  some  well-defined  plan  of  life 
marked  out  before  him.  and  all  his  energies  should  be  directed  to  the 
realization  of  it. 

Many  have  some  general  object  in  view,  such  as  getting  rich,  or 
getting  beyond  hard  work  at  some  time  of  their  life;  while  but  few 
have  a  specific,  noble  mark,  towards  which  they  are  aiming.  This  is 
the  reason  why  there  are  so  many  second-rate  young  men  to  be  found 
in  every  profession,  and  why  so  many  men  of  riper  years  are  neither 
one  thing  nor  another— strung  up  and  dangling  between  something  and 
nothing— breathing  in  the  unsatisfying  east  wind  of  a  glorious  medi- 
ocrity, and  hoping  that  an  undefined  something  may  turn  up  one  of 
these  days,  which  shall  relieve  them  and  place  them  in  an  undefined 
blissful  somewhere.  According  as  a  young  man  aims,  so  will  his 
arrow  fly.  According  to  the  energy  with  which  he  strives,  and  the 
talents  which  he  brings  to  bear,  so  will  he  rise.  But  what  are  the 
objects  to  be  aimed  at  by  a  young  banker?  For  what  end  should  he 
strive,  and  what  is  there  ahead  to  reward  his  toil?  What  are  the  ad- 
vantages of  the  banker's  profession?  The  advantages  enjoyed  by  per- 
sons in  this  profession,  for  the  attainment  of  everything  desirable  in 
life,  are  very  great,  and  the  inducements  held  out  by  the  profession 
to  ambitious,  enterprising  young  men.  are  enough  to  satisfy  any  rea- 
sonable person.  A  high  eminence  and  a  name  are  as  sure  of  attain- 
ment as  in  any  other  business. 

It  should  be  the  object  of  every  young  man  who  enters  the  pro- 
fession, to  become  thoroughly  acquainted  with  every  part  of  it.  He 
should  strive  to  become  familiar  with  it  all,  from  the  great  general 
principles  down  to  the  minutest  detail.    While  in  a  subordinate  situ- 


*The  excellent  ideas  contained  in  this  chapter  first  appeared  in  the 
Banker's  Magazine  many  years  ago.  Time  has  not  impaired  tlieir 
value.  They  were  written  by  George  T,  Bissell,  a  banker  in  Hart- 
ford, Conn. 


464  PRACTICAL   BANKING. 

ation,  he  should  not  be  satisfied  with  merely  doing  the  work  which 
is  laid  upon  him,  but  while  in  this  situation,  he  should  be  fitting 
himself  for  the  next  place  above  him.  His  aim  should  be  to  rise  as 
rapidly  as  is  consistent  with  a  healthy  growth,  till  he  has  placed  him- 
self at  the  head  of  an  institution;  and  then  his  ambition  should  be, 
to  be  first  in  his  profession,  to  reach  an  eminence  and  carry  his  banlj 
with  him.  To  aim  merely  at  a  cashiership,  or  to  be  president,  is  a  low 
aim;  but  to  be  known  as  the  best  cashier  or  president  in  the  country, 
is  an  aim  well  worthy  of  any  man,  and  is  the  only  one  which  should 
satisfy  a  young  man  entering  this  profession.  A  young  man  can  rise 
as  I'apidly  and  as  surely  in  this,  as  in  any  other  profession;  he  can  also 
rise  as  slowly  and  as  surely,  and  he  can  remain  as  immutably  sta- 
tionary as  in  any  other  calling  under  heaven.  There  are  plenty  of 
stopping  places  adapted  to  all  phases  of  mediocrity,  and  these  stopping 
places  are  very  tenacious  of  their  prey.  A  man  once  fixed  in  any  of 
them,  is  there  for  life. 

No  one  should  enter  the  business  imless  he  is  determined  to  reach 
the  top  of  the  ladder.  If  a  man  is  not  somewhat  ambitious,  and  unless 
he  can  see  through  a  pretty  long  transaction,  he  generally  becomes  a 
fixture.  Any  one  can  tell,  in  the  course  of  his  first  year,  whether 
he  is  adapted  to  the  business,  and  whether  he  will  succeed.  If  a 
young  man  begin  to  feel  the  trap-door  of  a  second-rate  station,  or  a  sub- 
ordinate clerkship,  pressing  him  down  as  he  is  trying  to  ascend  the 
ladder,  let  him  make  a  desperate  effort  to  raise  it;  but  if  he  cannot 
succeed,  let  him  at  once  betake  himself  to  some  other  ladder,  under 
some  other  opening. 

Let  no  one  enter  this  profession  with  the  expectation  of  becoming 
suddenly,  or  even  speedily,  rich,  for  this  expectation  will  be  disap- 
pointed; neither  let  any  entering  the  profession  be  afraid  of  ever  be- 
coming poor.  Labor  is  generally  liberally  rewarded,  and  talent  is  gen- 
erally appreciated.  There  are  some,  it  is  true,  in  banks,  who  receive 
but  small  pay,  and  who  delve  for  years  in  subordinate  situations,  but 
such  are  generally  men  not  largely  endowed  with  talent,  whose  aim  is 
nowhere,  and  who  consequently  are  paid  about  as  much  as  they  are 
worth.  A  man  of  talents  and  energy  is  always  sure  of  good  pay;  suf- 
ficient for  all  the  expenses  attendant  upon  a  genteel  style  of  living, 
besides  a  handsome  margin  for  moderate  investment  for  the  satisfac- 
tion of  that  great  maelstrom  account  generally  known  as  "sundries." 
He  is  always  sure  of  a  competence. 

A  competence  is  all  we  can  enjoy, 

O  be  content  where  Heaven  can  give  no  more. 

It  is  impossible  to  name  exactly  the  amount  of  salary  which  a  young 
man  may  expect  to  receive.  It  depends  a  little  upon  the  locality  and 
size  of  the  bank,  and  a  great  deal  upon  wliat  tlie  young  man  himself 
is,    A  moderate  young  man  in  a  moderately-sized  bank,  generally  has  a 


BANKINO  AS   A   PROFESSION   FOR  YOUNa  MEN.  465 

salary  very  uicely  fitted  to  him,  while  an  energetic,  talented  young 
man,  in  a  good  institution,  can  be  the  recipient  of  almost  any  sum 
that  he  has  the  face  to  ask  for.  Some  idea  upon  which  to  base  ex- 
pectations may  be  formed  from  a  knowledge  of  the  fact,  that  tellers' 
salaries  range  from  ?500  to  jpi.SOO  per  annum;  cashiers'  from  $800  to 
$5,000,  and  presidents'  about  the  same.*  In  some  banks  the  office  of 
president  is  a  mere  sinecure;  in  such  banks  the  president  receives  no 
salary,  but  takes  it  out  in  honor.  Let  a  young  man  fix  in  his  mind  the 
salary  that  he  thinks  he  ought  to  be  worth,  and  then  work  for  it,  and 
he  will  generally  receive  it.  A  banker,  from  the  nature  of  his  position 
in  the  financial  world,  has  often  opportunities  thrown  in  his  way  for 
making  money  besides  his  salary,  but  this  should  not  be  counted 
upon  by  a  young  man,  for  it  is  very  uncertain.  If  a  yoimg  banker  is 
working  for  a  name,  a  reputation,  and— which  follows  as  a  matter  of 
course — for  a  high  salary,  his  best  course  is  to  keep  himself  free  from 
anything  like  speculating,  shaving  or  dabbling  in  stocks.  He  should 
engage  in  no  other  business  but  his  bank,  and  he  should  keep  himself 
as  far  as  possible  from  any  course  in  which  there  is  the  least  pos- 
sibility of  becoming  in  any  way  involved  or  embarrassed. 

There  is  less  anxiety  of  mind  in  this  pi'ofession  than  in  most  others. 
It  is  true  that  the  banker  has  a  great  many  cares,  and  his  mind  has 
about  as  much  as  it  can  well  do.  but  there  is  none  of  that  terrible 
anxiety  of  mind  which  waits  upon  the  merchant  who  has  his  ware- 
houses full  of  goods,  prices  falling,  and  money  scarce.  The  merchant 
at  times  is  elated  by  prosperity,  and  again  he  is  weighed  down  by 
anxiety,  and  either  extreme,  or  the  transition  from  one  to  the  other 
is  very  wearing;  but  the  banker  has  at  all  times  enough  to  think  of. 
He  is  never  troubled  with  the  alternations  of  excitement  and  depres- 
sion; his  mind  is  constantly  active,  not  overtasked,  and  consequently 
its  action  is  always  healthy.  During  business  hours  he  works  hard, 
but  at  night  he  can  throw  off  all  care,  and  devote  himself,  if  he 
choose,  to  literary  pursuits,  and  to  self-improvement. 

There  are  times  in  great  commercial  distress  when  confidence  is 
destroyed,  that  banks  are  crowded  and  pressed  very  hard;  but  with 
ordinary  management  they  can  be  carried  safely  through.  No  bank 
ever  failed  where  there  was  good  management  and  no  speculation.  All 
that  is  required  is  caution  and  prudence;  but  the  most  incessant  ex- 
ercise of  caution  and  prudence  will  not  amount  to  that  anxiety  which 
produces  sleepless  nights. 

A  banker  can  have  a  great  deal  of  time  to  devote  to  mental  cul- 
ture, and  to  the  acquisition  of  useful  information.  He  generally  has 
his  evenings  to  himself  free  from  care,  and  much  can  be  done  by  the 
improvement  of  such  hours.    His  business  is  of  such  a  nature  that 


♦Since  this  was  written  these  salaries  have  increased  until  they 
are  now  (1884)  about  doubled. 


466  PRACTICAL  BANKING. 

this  is  not  incompatible  with  being  first  in  his  prof&ssion.  There  are 
some,  however,  who  worlv  night  and  clay,  and  make  slaves  of  them- 
selves, but  such  are  generally  men  who  care  but  little  for  mental  im- 
provement, and  whose  whole  aim  seems  to  be  to  remain  in  a  bank,  and 
yet  realize  a  treadmill.  Let  them  work.  They  have  the  satisfaction 
of  knowing  that  they  are  not  always  the  best  bankers.  The  best  in 
any  profession  are  those  who  have  room  enough  in  their  brains  for 
more  than  one  idea,  and  who  take  time  for  something  beside  dollars 
and  cents.  A  banker  can,  if  he  will  apply  himself,  so  cultivate  his 
mind  that  he  will  shine  as  brightly  in  social  life,  and  appear  as 
well,  even  in  literary  circles,  as  men  of  liberal  education. 

These  are  some  of  the  advantages  of  the  banker's  profession,  and 
these  are  some  of  the  inducements  which  are  held  out  to  those  who 
wish  to  enter  it. 

A  young  man  in  order  to  succeed  should  maintain  a  straightforward 
course,  both  in  his  own  affairs,  and  in  the  affairs  of  the  bank;  he 
should  be  possessed  of  a  clear  head,  a  mind  not  easily  carried  away 
by  tempting  offers  for  speculation,  a  disposition  to  receive  very  fair 
stories  with  considerable  allowance;  he  should  have  urbanity  combined 
with  firmness  and  decision,  and  above  all,  he  should  have  a  deep- 
seated,  stubborn  passion  for  good  security. 

These  are  the  traits  which  are  absolutely  necessary  to  insure  success 
in  banking.  Without  them  no  young  man  should  enter  a  bank.  AVith- 
out  them,  a  young  man  should  rather  take  himself  to  some  one  of  the 
other  professions,  where  even  a  fool  can  sometimes  make  a  happy  hit. 
In  banking  there  are  no  happy  hits  to  be  made;  the  life  is  one  long, 
dead  pull  upon  talent,  energy  and  perseverance. 


ADVICE  TO   DEPOSITORS,  467 


ADVICE    TO    DEPOSITORS. 


If  you  are  a  stranger  to  the  officers,  and  wish  to  open  an  account, 
get  some  respectable  person  who  is  known  to  them  to  introduce  you 
either  to  the  president  or  cashier.  Do  not  asli  him  to  vouch  for 
anything  beyond  your  integrity  and  fairness  in  dealing.  Tell  your  own 
story  about  capital,  business,  property,  and  other  matters  which  pertain 
to  your  commercial  prospects— and  exaggerate  nothing.  There  is  no 
humbug  that  will  recoil  upon  yourself  so  surely  as  an  attempt  to  palm 
off  big  tales  on  a  bank  officer.  Your  deposit-tickets,  your  checks,  your 
bills  receivable,  your  endorsements,  and  j^our  ledger  account,  make 
together  a  history  that  dispels  all  shams,  and  leaves  little  to  say.  A 
man  who  begins  with  an  exaggerated  account  of  himself  is  measured 
by  it  afterwards,  and  appears  relatively  small. 

Borrow  no  money  of  your  neighbors  to  swell  your  first  deposits. 
This  is  a  common  practice,  with  the  idea  that  it  will  make  a  favorable 
impression  on  the  officers.  They  see  through  it  at  once,  and  take  it  as  a 
proof  of  weakness. 

Never  try  to  bargain  for  special  indulgences,  such  as  the  certifica- 
tion of  your  checks  before  your  deposit  i;^  made,  or  the  discount  of  your 
paper  by  the  officers  without  its  submission  to  the  Board  of  Directors. 
The  character  of  your  account  will  settle  these  matters  much  more  sat- 
isfactorily to  all  parties. 

Let  your  intercourse  with  the  officers  be  candid  and  courteous,  and 
be  sparing  in  your  personal  solicitation  for  discounts.  Choose  the 
earlier  hours  of  the  day  for  your  interviews,  and  especially  avoid  the 
last  hour  before  3  o'clock. 

Write  your  signature  with  the  same  freedom  that  you  do  in  your 
own  office,  and  never  vary  the  style  of  it. 

Teach  your  clerks  to  use  always  the  deposit-tickets  furnished  by 
the  bank,  to  examine  the  date  and  endorsement  of  every  check,  and 
also  to  see  that  the  writing  of  the  amount  corresponds  with  the  figures. 
Instruct  them  to  learn  and  to  follow  the  rules  of  the  bank  with  respect 
to  getting  checks  certified  before  deposit. 

Make  your  deposit  as  early  in  the  day  as  possible.  If  you  are  ac- 
customed to  have  many  checks,  or  large  packages  of  bank  bills,  it  is 


468  PRACTICAL  BANKING. 

better  to  make  two  deposits— one  at  an  early  hour— than  to  hand  in  all 
at  once  just  at  3  o'clock.  Never  change  checks  with  other  people 
merely  to  make  larger  figures.  It  causes  needless  labor  to  the  bank 
clerks,  makes  you  responsible  for  the  debts  of  others,  and  is  a  real 
prejudice  to  your  credit. 

Never  try  to  put  in  your  deposit  before  those  in  advance  of  you,  but 
take  your  place  in  the  line,  and  wait  your  turn  patiently.  Never  make 
deposits  without  your  bank-book,  if  you  can  help  it.  Avoid  all  un- 
necessary conversation  with  the  clerks,  especially  with  the  tellers. 

Never  get  angry  if  the  paying  teller  examines  your  account  before 
certifying  your  check;  nor  if  he  keeps  you  waiting  a  feAv  seconds  be- 
fore he  can  pay  it. 

Make  it  an  invariable  rule  to  give  checks  only  out  of  your  own 
check-book,  and  at  your  own  office.  When  you  want  the  endorsement 
of  the  person  to  whom  you  give  it,  if  he  wishes  to  draw  the  money, 
let  him  endorse  the  check  in  your  presence,  and  write  your  own  name 
below  his  signature,  to  assure  the  teller  that  it  is  right. 

Never  give  out  checks  dated  ahead.  When  you  have  need  to  cut 
checks  out  of  the  end  of  your  check-book,  mark  in  the  margin  what 
they  are  for— to  supply  duplicates,  or  otherwise.  Keep  your  check- 
books out  of  the  sight  and  reach  of  strangers.  Never  give  a  stranger 
a  check  unless  you  have  some  evidence  that  he  is  not  seeking  it  for 
fraudulent  purposes.  Never  draw  checks  against  your  account,  on  the 
ground  that  you  have  sent  some  abroad  that  will  not  return  immedi- 
ately.   Always  consider  a  check  paid  when  you  give  it  out. 

Never  attempt  to  pay  a  note  with  an  uncertified  check,  at  a  bank 
where  you  keep  no  account.  If  you  make  your  promissory  notes  pay- 
able at  a  bank,  give  the  paying  teller  a  list  of  them  on  Monday  morn- 
ing for  the  current  week,  or  send  him  your  bank  notices  on  the  day 
of  their  maturity. 

When  you  want  notes  discounted,  offer  them  on  the  regular  days, 
and  in  good  season  for  the  clerk's  convenience.  Never  call  on  bank 
oflicers  to  discount  notes  between  the  board  meetings,  if  you  can  wait 
until  the  following  discount  day.  Do  not  put  off  the  offering  of  notes 
for  discount  until  the  last  day  of  your  need.  It  is  better  to  keep  from 
ten  days  to  a  fortnight  ahead,  and  to  let  your  balances  remain  in  the 
bank  until  you  require  them.  The  loss  of  interest  is  very  trifling  at 
best.    You  lose  more  by  anxiety  and  unfitness  for  business. 

When  you  want  your  bank-book  balanced,  or  entries  made  in  it, 
apply  to  the  bookkeeper  early  in  the  day.  Never  ask  a  service  of  hlui 
later  than  1  o'clock  if  you  can  wait  till  the  next  morning.  Do  not 
allow  your  book  to  run  too  long  without  being  balanced,  and  when 
balanced,  examine  your  canceled  checks  without  delay. 

If  the  bank  ledger  shows  a  larger  balance  in  your  favor  at  any 
time,  than  your  own  check-book,  acquaint  the  bookkeeper  with  it  im- 


ADVICE  TO  DEPOSITORS.  469 

mediately.  As  you  value  your  credit  with  the  bank,  never  take  ad- 
vantage of  deposits  wrongly  entered  to  your  account,  but  let  your  deal- 
ings be  strictly  honorable. 

If  you  have  any  cause  of  complaint  against  the  clerks,  state  it  di- 
rectly to  the  officers.  The  clerks  act  under  their  instructions,  which 
they  dare  not  disobey. 

The  bookkeeper  is  the  proper  person  to  apply  to,  to  know  if  col- 
lection notes  are  passed  to  your  credit. 

The  note  clerk  will  inform  you  of  the  maturity  of  notes  for  a  future 
time.  In  the  case  of  discounted  notes  apply  to  the  discount  clei'k.  The 
discount  clerk,  or  the  note  clerk,  will  commonly  tell  the  exchange  or 
charges  for  collecting  foreign  paper. 

When  you  have  notes  to  send  abroad  for  collection,  deposit  them 
in  ample  time  for  deliberate  record  and  transmission  by  the  bank. 

If  the  drawers  of  any  notes  lodged  as  collateral  to  loans  or  dis- 
counts should  fail,  do  not  wait  for  the  bank  officers  to  discover  it, 
but  substitute  good  notes  for  them  without  delay. 

The  observance  of  these  rules,  and  such  others  as  may  be  sug- 
gested by  your  own  observation,  will  be  a  great  economy  of  time  to 
yourself  as  well  as  to  the  bank  clerks,  and  promote  your  real  credit 
with  the  institution. 


470  PRACTICAL  BANKING. 


SUGGESTIONS    TO    YOUNG    CASHIERS    ON    THE    DUTIES    OF 
THEIR    PROFESSION.* 

Banking  has  become  a  part  of  the  very  framework  of  our  system 
of  business.  Even  Mr.  Calhoun  said,  as  long  ago  as  1816,  when  the 
whole  banking  capital  in  the  United  States  was  only  eighty  millions 
of  dollars,  that  "the  question  whether  banks  are  favorable  to  public 
liberty  and  prosperity  was  one  purely  speculative.  The  fact  of  the 
existence  of  banks,  and  their  incorporation  with  the  commercial  con- 
cerns and  industry  of  the  nation,  prove  that  inquiry  to  come  too  late. 
The  only  question  was.  on  this  hand,  under  what  modifications  were 
banks  most  useful,"  etc.  Banks  now  exist,  in  some  form  or  other, 
everywhere,  and  will  continue,  probably,  as  long  as  property  shall  be 
bought  and  sold  on  credit.  In  all  coming  time,  therefore,  we  are  to 
have  a  class  of  men  to  deal  in  money,  in  promissory  notes,  and  foreign 
and  domestic  exchange.  The  avocation  has  ever  been  honorable,  to  the 
last  degree  responsible,  and  exposed  to  many  and  to  peculiar  temp- 
tations. 

The  world,  seemingly  more  inexorable  with  our  profession  than 
with  others,  deals  out  its  direct  maledictions  upon  those  of  us  who 
err.  and  will  hardly  forgive  the  managers  of  a  broken  bank,  or  the 
officer  whose  "cash  is  short,"  even  when  there  is  no  other  guilt  than 
credulity,  too  easy  good  nature,  or  incapacity.  To  stand  upon  our  de- 
fense against  unjust  accusations,  and  to  ido  what  we  can  to  diminish 
the  causes  of  corporate  and  of  individual  delinquency,  are  duties 
which  we  owe  to  ourselves  and  to  those  who  are  to  succeed  us.  Dis- 
persed, as  we  are,  over  a  vast  extent  of  country,  we  can  best  correct 
public  sentiment,  and  afford  counsel  and  admonition  to  one  another,  as 
well  as  render  our  knowledge  of  banking  available  as  common  stock, 
by  means  of  the  work  established  for.  and  devoted  to,  our  benefit. 

Banks,  with  us,  both  public  and  private,  differ— as  none  need  to  be 
told— in  many  things  from  those  of  England  and  of  Continental  Europe. 
It  is  known,  also,  that  our  system  is  not  perfect,  and  that  essential  im- 


♦This  essay,  by  Lorenzo  Sabine,  of  Framingham.  Mass..  was  origi- 
nally published  in  the  Banker's  Magazine  in  January,  1852.  A  few 
changes  have  been  made  to  adapt  it  to  the  present  work. 


SUGGESTIONS  TO  YOUNG  CASHIERS.  471 

provements  can  be  made  in  it.  Hence,  whatever  the  value  of  essays 
upon  foreign  banlcing,  papers  devoted  to  our  own  are  far  more  useful 
to  us,  regarded  as  a  class;  and  hence,  too.  the  necessity  for  a  free 
interchange  of  thought  by  banliers  in  different  parts  of  the  Union. 

I  pass  now  to  topics  immediately  connected  with  the  duties  of  a 
cashier.  The  limits  of  this  essay  do  not  admit  of  elaborate  reasoning, 
but  demand,  indeed,  that  mere  suggestions  shall  be  made  with  the 
brevity  of  proverbs.  I  may  be  permitted,  then,  to  address  myself  to 
the  young  officer,  directly,  and,  as  it  were,  personally. 

You  are  to  lead  a  life  so  confined,  sedentary,  and,  in  some  respects, 
so  mechanical,  that,  unless  you  observe  great  care,  you  will  become, 
in  the  lapse  of  years,  a  sort  of  machine  for  computing  discounts, 
counting  money,  writing  letters,  and  keeping  books.*  You  are  to 
transact  business,  and  to  have  a  constant  intercourse,  with  men  of 
every  shade  of  character,  of  every  variety  of  disposition,  and  of  every 
degree  of  intelligence.  Your  temper  is  to  be  tried  by  interruptions  at 
the  most  unseasonable  moments,  to  attend  to  the  calls  of  the  impatient, 
or  to  answer  the  inquiries  of  the  ignorant  or  inquisitive.  You  are  to 
be  tempted  to  embark  in  speculations  in  stocks;  to  be  solicited  to  allow 
overdrawings  and  other  irregularities  by  the  companions  of  your  social 
hours,  and  it  may  be,  by  one  or  more  of  our  own  directors;  and  you  are 
to  have  the  same  domestic  cares  and  afflictions,  the  same  personal  aches 
and  pains  as  other  men;  and  yet  you  are  expected  to  be  ever  at  your 
post,  to  be  ever  courteous,  to  stand  fast  in  your  integrity,  and  to  seem 
cheerful,  and  even  happy.  In  a  word,  and  as  Girard  said,  at  the 
decease  of  his  old  and  faithful  cashier,  "the  bank  must  go  on,"  what- 
ever your  private  griefs  or  individual  disabilities.  Your  position  is  thus 
one  of  much  difficulty,  responsibility  and  peril;  and  you  need  a  knowl- 
edge of  the  laws  of  your  physical  being,  the  counsel  of  wise  friends, 
strict  and  daily  self-examination,  and  deep  religious  principle,  to  enable 
you  to  sustain  it  in  health  and  honor.  But  be  of  good  cheer;  be  a  true 
man,  and  you  will  overcome  every  obstacle  in  the  way  of  a  long  and  of  a 
useful  life. 


♦Every  person  of  observation  will  attest  to  the  need  of  the  caution 
in  the  text.  Long  and  close  application  to  one  branch  of  business,  and 
the  habit  of  being  at  one  place  for  a  course  of  years,  produce  wonder- 
ful transformations  in  the  character.  The  case  of  Mr.  Rippon,  the  late 
chief  cashier  of  the  Bank  of  England,  furnishes  an  illustration  well 
worth  citing.  He  was  connected  with  that  institution  for  more  than 
half  a  century,  and  asked  but  for  a  single  leave  of  absence  from  his 
post  during  the  entire  period,  and  in  this  instance,  even,  he  applied  at 
the  suggestion  of  his  physician,  on  the  ground  of  ill  health.  Per- 
mission was  granted,  and  our  bank  officer  departed  from  London  to  be 
absent  two  weeks.  But  the  country  was  without  charms,  idleness 
preyed  upon  his  spirits,  and  the  habit  of  years  was  so  strong  that,  at 
the  end  of  three  days,  he  returned  to  the  bank,  solely  to  become 
happy  again. 


472  PRACTICAL   BANKING. 

Your  bank  has  secrets;  and,  that  they  be  kept  inviolable,  adopt  a 
rule  to  speak  of  its  affairs  only  to  persons  connected  with  you  in  its 
management. 

You  should  embrace  every  opportunity  to  acquire  information  as 
to  the  standing  of  your  customers;  and  whatever  is  imparted  to  you 
on  the  subject,  whether  in  confidence,  or  otherwise,  should  be  com- 
municated to  your  directors,  and  to  them  alone. 

You  should  become  acquainted  with  the  laws  relative  to  banking, 
and  especially  with  those  of  your  own  State;  and  should  be  familiar 
with  some  work  which  treats  of  notes  and  bills,  of  the  liabilities  of 
sureties,  drawers  and  endorsers.  I  recommend,  as  the  easiest  way  to 
obtain,  and  to  retain,  knowledge  in  these  particulars,  that  you  make 
a  manual,  or  brief  digest,  with  marginal  references  to  the  authorities 
which  you  consult.  The  best  books  are  "Daniel  on  Negotiable  Instru- 
ments," and  "Morse  on  the  Law  of  Banks  and  Banking."  To  master 
these  works,  or  even  to  obtain  common  knowledge  of  the  immense 
learning  which  they  contain,  will  require  time— much  time.  But  the 
leading  principles  applicable  to  promissors  and  other  parties  to  com- 
mercial paper,  are  easily  fixed  in  the  memory,  and  no  time  should  be 
lost  in  consulting  the  latter  treatise,  at  least.  I  recommend  to  the 
young  cashier  to  devote  a  part  of  his  leisure  to  professional  reading 
of  a  more  general  nature.  The  history  of  the  system  of  credit  is  not 
only  curious,  but  interesting  and  instructive.  Strangely  enough,  as  he 
will  find,  banking  owes  its  origin  to  the  Crusades,  for  the  earliest  in- 
stitutions of  which  there  is  any  account  was  a  mere  bank  of  deposit, 
established  at  Venice,  late  in  the  Twelfth  Century,  for  the  purpose  of 
aiding  those  who  fought  to  win  the  Holy  Land  from  its  unholy  pos- 
sessors. Such  was  the  first  element,  and  the  degree  of  security  and 
facility  of  commercial  transactions  of  the  period  may  be  seen  in  the 
fact  that,  in  England,  contracts  between  individuals  were  discharged 
by  payments  in  cattle,  horses,  dogs,  and  even  hawks;  and  that  rents, 
fines,  and  taxes  due  the  crown  were  paid  in  the  same  kinds  of  property, 
in  products  of  the  soil,  and  in  merchandise  generally.  In  a  word,  the 
idea  of  paper  money  based  on  the  precious  metals,  or  on  personal 
estate  and  credit,  or  on  lands,  had  not  been  conceived,  we  may  fairly 
conclude,  anywhere.  Next,  if  the  notes  of  my  own  reading  be  ac- 
curate, and  equally  strange,  we  hear  of  some  sort  of  paper  credit,  early 
in  the  Thirteenth  Century,  not  in  any  trading  country  of  Europe,  but 
in  far-off,  and,  as  we  commonly  say,  in  barbarous  China.  So,  again, 
toward  the  close  of  the  last-mentioned  century,  we  are  told  that  the 
hated  and  hunted  .lews  and  Lombards  invented  the  bill  of  exchange, 
which  afforded  means  for  the  silent  and  secret  transfer  of  funds 
from  country  to  country,  to  the  infinite  discomfiture  of  robber  kings 
and  of  robber  outlaws.  Next,  probably,  in  chronological  order,  was  the 
promissory  notes,  which  strange  device,  grave  and  learned  judges,  in 
solemn  wig  and  ermine,  dared  at  length  to  pronounce  to  worn  and 


SUGGESTIONS  TO  YOUNG  CASHIERS.  473 

weary  litigants,  miglit,  if  traffickers  so  willed,  pass  current  from  one 
person    to    anotlior,    and    be    lawfully    collected    by    the    final    owner.* 

The  young  cashier  having,  by  his  researches,  couAMcted  me  of  in- 
accuracy, or  having  established  the  truth  of  the  foregoing  outlines  of 
bank  history,  may,  as  opportunity  occurs,  pursue  the  subject  still 
further.  The  first  charter  of  the  Bank  of  England  is  accessible,  and 
he  may  study  it  with  profit,  and  to  ascertain  the  immense  progress 
which  has  been  made  in  the  principles  of  banking,  whether  as  relates 
to  rights  of  stockholders  or  to  public  convenience  and  safety.  Hi>  will 
find  valuable  lessons  in  the  legislation  of  his  own  country;  in  the  issue 
of  paper  money  px'ior  to  the  revohition,  which  at  times  flooded  the 
colonies,  and  which  in  spite  of  the  clamors  of  our  fathers,  was  sup- 
pressed by  Parliament;  the  marvelous  tales  and  traditions  which  have 
come  down  to  us  of  the  never-to-lje-forgotten  "continental  money," 
without  which  the  bonds  of  colonial  vassalage  would  not  have  been 
broken  when  and  as  they  were;  in  the  earlier  charters  of  the  different 
State  Governments,  and  in  the  two  charters  of  Congress  of  the  great 
national  institution  which  has  now  ceased  to  exist. 

This  general  inquiry  concluded,  he  will  have  improved  his  own 
mind,  and  be  ready  to  meet  and  to  reason  with  those  who,  because 
the  system  has  not  been  perfected  in  a  century  and  a  half  (dating  from 
the  establishment  of  the  Bank  of  England),  demand  its  entire  abolition, 
or  at  least  such  changes  as  would  render  it  powerless  for  good,  alike 
to  individuals  and  to  communities.  He  can  say  and  prove  that  credit, 
wide,  liberal,  beneficent  credit,  belongs  to  the  era  of  liberty,  and  that  it 
was  unknown  even  in  free  England  until  after  the  expulsion  of  the 


*As  late  down  as  the  reign  of  William  and  Mary,  the  courts  of 
England  refused  to  consider  an  inland  bill  of  exchange  a  legal  in- 
strument; nor  was  it  until  tlie  time  of  Anne,  that  a  promissory  note, 
in  the  liands  of  an  endorsee,  could  be  collected  by  law,  of  the  maker. 
Still,  again,  about  the  middle  of  the  Fourteenth  Century,  we  meet  with 
the  origin  of  pul)lic  scrip  in  the  governmental  certificates  of  Florence, 
which,  I  suppose,  Avere  the  first  ever  issued  in  Europe.  Thus,  we 
have  five  elements  in  modern  banking.  Two  others,  namely,  those  of 
discount  and  circulation,  Avere  yet  wanting.  Neither  poAver  Avas  con- 
ferred upon  the  Bank  of  Amsterdam,  which,  founded  near  the  opening 
of  the  Seventeenth  Century,  AA'as  designed  merely,  as  it  would  seem, 
to  check  the  evils  of  a  clipped  and  Avorn  metallic  currency.  Nor  was 
the  Bank  of  Hamburg,  Avhich  A\'as  established  immediately  after,  hanily 
more  than  an  institution  for  deposit  and  transfer.  In  the  progress, 
however,  of  civilization,  or  commercial  dealing  and  necessity,  we 
come  at  last,  and  toAvard  the  close  of  the  Seventeenth  Century,  to  the 
Bank  of  England,  Avhich  Avas  invested  Avith  authority  to  receive  de- 
posits, to  buy  and  sell  exchange,  to  aid  in  the  management  of  pui)!ie 
securities,  to  discount  promissory  notes,  and  to  issu(>  a  paper  currency. 
And  so  it  appears  from  this  rapid  vieAV,  that  more  tlian  five  hundred 
years  elapsed  before  all  tlie  elements  of  modern  banking  are  com- 
bined, arranged,  and  reduced  to  a  system  in  Avhich  statesmen  and 
merchants  reposed  confidence. 


i*ti  PRACTICAL  BANkiKtt. 

Stuarts,  and  until  the  revolutiou  there  had  secured  personal  freedom. 
He  may  stand  upon  the  emphatic  declaration  of  a  great  statesman,* 
that  the  system  of  credit,  as  it  now  prevails,  is  the  vital  air  of  com- 
merce, and  (hat  "it  has  done  more,  a  thousand  times,  to  enrich 
nations  than  all  the  mines  in  all  the  world."  He  should,  indeed,  admit 
that  its  fluctuations,  its  ebbs  and  flows,  sometimes  cause  desolation 
and  ruin;  yet  he  should  not  fail  to  insist  that  good  and  wise  men 
steadily  strive  to  improve  it— that,  as  sweeping  conflagrations  allow  of 
the  straightening  and  widening  of  streets,  and  as  disasters  in  travel- 
ing by  steam  suggest  more  careful  management  and  better  machinery, 
so  do  bank  failures  and  the  delinquencies  of  bank  officers,  however 
appalling  the  circumstances  at  the  moment,  serve  to  discover  and  to 
apply  new  checks  and  new  remedies. 

If  your  bank  is  old  enough  to  have  been  through  "a  crisis."  and  if 
yf)u  have  not  served  in  it  as  an  inferior  officer,  you  have  much  to  learn 
of  its  past  business.  Such  an  institution,  for  example,  has  a  "sus- 
pended del)t"  account,  or  at  best  overdue  paper  secured  by  mortgage 
or  other  collateral;  and  assets  of  this  description  always  have  a  history, 
and  sometimes  a  very  intricate,  a  very  perplexing  one.  But  you  must 
become  master  of  that  history.  Directors  change  every  year;  and 
in  a  little  time,  all  who  were  at  the  "Board"  when  this  class  of  paper 
was  taken  will  have  vacated  their  seats;  while,  then,  some  are  still  in 
the  direction,  make  written  memoranda  of  the  principal  facts. 

Let  it  be  manifest  to  your  associates  and  stockholders,  that  you  feel 
an  interest  in  everything  which  relates  to  their  welfare.  To  work  the 
whole  of  your  capital  and  of  your  deposits,  to  keep  both  actively  em- 
ployed at  all  times,  and  yet  to  be  always  able  to  meet  the  demands  on 
you,  require  great  wisdom;  and  the  most  skillful  and  experienced 
financiers  sometimes  find  themselves  at  fault  for  the  moment.  Your 
duty  requires  continual  experiments  to  effect  this  great  object. 

Need  I  suggest  the  benefits  of  a  fixed  system,  and  of  method,  even 
in  matters  seemingly  of  little  consequence?  Everybody  finds— as  sea- 
men have  it— that  "a  stern  chase  is  a  long  chase."  The  business  of 
to-day  should  never  be  deferred  till  to-morrow.  Answer  letters,  and  file 
papers,  at  the  instant.  Remember  everything,  if  possible;  but  trusting 
to  memory  in  nothing;  let  your  books  contain  a  record  of  all  transac- 
tions. Allow  no  outstanding  bills  against  the  bank;  and  have  a  voucher 
for  the  smallest  item  charged  to  "Expense  Account." 

You  can  be,  and  you  ought  to  be,  ready  for  an  "examination"  by  the 
"Commissioners,"  or  other  functionaries  of  the  government,  and  of  your 
own  "Board,"  without  previous  notice,  and  without  the  slightest  special 
preparation.  In  fine,  close  your  vaults  daily  with  the  reflection  that  no 
act  has  been  neglected,  and  that,  if  sickness  or  death  should  occur  "the 
bank  can  go  on"  with  no  loss  to  your  family,  sureties,  or  stockholders. 


*Mr.  Webster. 


gTJQGESTlONS  TO  YOUNO  CASHIERS.  475 

Do  not  smile,  if  I  add,  that  your  banking-rooms  should  be  swept,  and 
your  desks  and  counters  be  dusted  daily;  that  one  "slut-hole"  is 
ample  for  all  the  twine  and  waste-paper;  and  that  the  accumulations 
of  official  papers  and  memorandums  in  your  private  drawer  will  cause 
both  you  and  your  associates  serious  delays  and  ranch  inconvenience. 

Panics  and  pressures  are  as  certain  in  banlcing  as  storms  in  winter. 
When  either  exist,  firmness  and  courage,  if  not  reallj-  possessed,  must 
be  assumed.  You  are  presumed  to  know  the  nature  and  extent  of  your 
resources  under  all  circumstances,  and  at  periods  of  general  distrust 
especially;  and  if  the  amount  of  those  immediately  available  are  insuffi- 
cient for  every  possil)le  call  upon  you,  thus  advise  your  directors  with- 
out delay. 

A  knowledge  of  human  character  is  indispensable.  Study  it.  The 
"actions,  looks,  words,  and  steps"  of  your  customers  "form  an  alpha- 
bet;" and  your  "eyes  are  spectacles  to  read  others"  hearts  with."  Care- 
ful, close,  and  continued  observations  will  enable  you  to  detect  a 
counterfeit  man  as  readily  as  you  now  do  a  counterfeit  bank  note.  My 
own  experience  is,  that  those  who  change  countenance,  or  the  weight 
of  the  body  from  one  foot  to  the  other,  when  meeting  a  full,  searching 
and  fixed  gaze,  are  not  truthful;  that  those  who  ask  for  additional 
accommodations,  prefacing  the  request  with  a  story  divided  into  acts 
like  a  drama,  are  already  bankrupt;  and  that  those  who  petition  in 
whispers,  in  an  unnatural  tone  of  voice,  in  a  cant,  or  a  whine,  are  hypo- 
crites. Some  years  hence,  1  shall  be  glad  to  ascertain  how  nearly  your 
experience  accords  with  mine. 

You  should  be  courteous  and  respectful  to  all.  Self-command  is  a 
great  virtue;  indulgence  of  passion  is  a  great  fault.  Impertinence  and 
stupid  ignorance  might  sometimes  be  rebuked,  were  it  not  for  the  dan- 
ger of  contracting  a  morose  and  irritable  habit  of  speaking.  There 
is  no  loss  of  dignity,  or  of  self-respect,  in  perfect  silence  under  the 
greatest  provocation,  and  that,  accordingly,  is  your  safest  course.  The 
cashier's  popularity  or  unpopularity  gives  character  to  a  bank.  The 
directors  are  seldom  visible,  and  sometimes  unknown  to  occasional 
customers;  but  their  executive  officer  is  an  ever-present  and  a  known 
man,  and  should  bear  in  mind  the  Latin  proverb  namely,  to  "be  cautious 
what  he  says,  when,  and  to  whom."* 

Should  you  acquire  a  reputation,  you  maj'  be  solicited  to  change 
your  place;  or,  becoming  discontented,  may  seek  to  do  so  on  your  own 
motion.  In  the  former  ca.se  you  are  to  consider  your  directors  as  your 
friends,  and,  stating  all  the  facts  fairly,  obtain  their  views  before  tak- 
ing a  single  step  to  meet  the  overture  made  to  yon.  This  is  an  impera- 
tive duty;  and   performing  it   in   honor,   and  acting  under  the  advice 


*A  "bill-broker,"  says  Mr.  Windham  Beaves,  "should  avoid  bab- 
bling, and  ))e  prudent  in  his  office,  which  consists  in  one  sole  point,  that 
is,  to  hear  all  and  say  nothing." 


4'J'6  PRACTICAL   BANKlNGt. 

of  wise  counselors,  you  can  hardly  come  to  a  wrong  conclusion.  I 
assume  here  that  your  bank  is  sound,  and  that  it  is  under  the  direction 
of  competent  and  safe  men.  If  unfortunately  otherwise,  if  your  repu- 
tation be  at  stalie,  and  your  directors,  or  a  governing  part  of  them,  are 
ignorant  or  regardless  of  the  principles  of  banking,  or  are  "speculators," 
who  seek  their  own  accommodation,  you  should  retire  at  once.  But 
upon  this  point  I  will  not  dwell,  since  it  is  to  be  hoped  that  such  insti- 
tutions and  such  men  have  nearly  passed  away. 

It  is  related  that  the  eminence  of  the  five  brothers  Rothschild,  as 
bankers,  is  to  be  attributed  in  a  great  measure  to  their  strict  observ- 
ance of  their  father's  dying  injunction,  to  "remain  united."  Well  may 
it  be  so.  Unanimity  in  the  direction  of  a  bank  is  always  an  element  of 
success;  and  the  result  of  my  observation  in  this  regard  is,  that  more 
losses  occur  from  divisions,  than  from  any  other  single  cause.  Accom- 
modation notes,  large  and  standing  loans  to  particular  parties,  and 
similar  departures  from  legitimate  l)anking  are  only  to  be  tolerated 
in  cases  which  receive  the  assent  of  the  entire  direction.  Yet  I  have 
known  one  and  all  of  these  departures  to  be  consummated,  time  and 
again,  by  directors  who  owned  the  smallest  possible  amount  of  stock, 
in  opposition  to  the  remonstrances  of  older  and  abler  associates  who 
were  large  stockholders;  and  years  afterward,  when  legal  remedies  had 
been  exhausted,  and  levies  and  set-offs  had  failed  to  restore  more  than 
costs  of  suit,  have  personally  made  wearisome  journeys  and  devoted 
weeks  to  the  service  of  closing  up,  as  1  best  could,  these  unfortunate 
illustrations  of  the  rule  that  "a  majority  should  govern"  in  the  di- 
rectors' room,  as  in  politics.  In  short,  such,  in  my  view,  are  the  evils 
of  the  majority  principle  in  this  connection,  that  I  would  coimsel  a 
cashier,  whether  young  or  old,  to  insist  upon  a  reasonable  change,  and 
a  change  refused,  to  seek  an  institution  more  wisely,  more  safely  con- 
ducted. 

You  may  be  discontented  without  cause.  I  remember  to  have  read 
a  story,  in  which  one  of  the  characters  was  in  possession  of  everything 
that  heart  could  ask,  but  was  miserable  from  this  very  circumstance, 
or  because  he  wanted— a  want.  Such  persons  exist  in  real  life.  Be 
not  of  that  unhappy  class.  Accommodate  yourself  to  your  condition. 
Do  not  seek  for  happiness  in  change  of  place,  but  in  change  of  dispo- 
sition. "The  lazy  ox  wishes  for  the  trappings  of  the  horse,  and  the 
steed  sighs  for  the  yoke,"  is  an  old  saw  that  has  not  yet  lost  its  mean- 
ing. Nor  should  the  topic  be  dismissed  without  recalling  the  pithy 
epitaph  composed  for  the  hypochondriac,  who  quacked  himself  into  his 
grave:  "I  was  well;  but  by  endeavoring  to  be  better— am  here."  Let 
the  young  cashier  heed  the  moral  contained  in  these  several  apt  say- 
ings, and  remember  that  care  and  perplexity  exist  everywhere.  To 
smoothe  and  fashion  the  rough  stone  of  life  is  a  religious  duty.  The 
change  of  one's  home  involves  a  change  of  society,  of  privileges  of 


SUGGESTIONS  TO   YOUNG  CASHIERS.  477 

worship,  of  schools,  of  facilities  in  traveling,  of  household  expenses,  of 
access  to  books,  and  various  other  essentials;  and  should  be  care- 
fully considered  in  every  aspect  before  it  is  actually  undertaken.  And 
I  bestow  the  more  attention  upon  the  point,  because  the  propensity 
to  remove  from  one  place  to  another  is  so  common,  and  because  within 
the  circle  of  my  acquaintance,  many  have  been  ruined,  and  but  few 
have  improved  their  condition  or  increased  their  happiness,  by  seeking 
a  new  abode.  In  middle  age,  the  experiment  is  doubly  hazardous. 
Take  up  a  full-grown  three,  and  will  it  live  unless  some  of  the  old 
earth  go  with  it?  Sunder  the  ties  of  sympathy  and  affection;  exchange 
old  faces  and  associates  for  new  ones,  and  what  is  the  condition  of  a 
man? 

To  resume  my  personal  address  to  the  young  cashier,  you  should 
not  possess  an  overweening  desire  of  pi'aise,  nor  invite  commendation. 
Nor  should  you  be  intoxicated  with  your  own  merits. 

You  should  never  speak  of  your  official  acts,  except  in  explanation 
and  in  self-defense.  In  all  pleasantry,  I  will  add,  that,  in  old  age,  you 
may  tell  the  son  who  succeeds  you  what  you  were  in  your  youth;  but, 
now,  be  content  with  the  quiet  appreciation  of  others.  Delicate  atten- 
tions and  marks  of  respect  are  the  surest  and  best  manifestations  of 
regard,  and  if  j'ou  have  these,  do  not  pine  in  discontent  or  discourage- 
ment. 

In  your  official  intercourse  with  the  president  and  directors,  observe 
great  deference;  and  at  the  "Board"  it  may  be  proper  to  address  the 
former  by  his  title. 

Never  speak  of  the  real  or  supposed  faults  of  character  of  a  director 
in  the  social  circle,  nor  bear  tales  or  remarks  from  one  director  to 
another.  Whatever  your  preferences,  likes,  and  dislikes— and  you  will 
probably  have  both— your  conduct  should  be  uniformly  respectful  to  all. 
Whenever  your  opinion  is  asked,  or  given,  without  solicitation,  state 
your  views  modestly,  and  in  a  conversational  tone  of  voice.  Should 
the  "Board"  differ  from  you  in  judgment,  and  decide  contrary  to  your 
convictions,  betray  no  feeling,  but  promptly  and  cheerfully  execute 
their  vote. 

Frequent  communications  Avith  the  directors,  relative  to  the  general 
concerns  of  the  bank  and  to  j-our  own  particular  duties,  will  be  of 
essential  service;  since  they  will  thus  obtain  a  knowledge  of  details, 
and  you  will  have  the  benfit  of  their  reflections  and  suggestions.  "Con- 
ference," says  the  wise  Lord  Bacon,  "maketh  a  ready  man." 

Your  style  of  living  is  a  matter  of  momentous  consequence;  and, 
possibly,  the  hinge  on  which  your  final  destiny  will  turn.  Not  only 
live  within  your  income,  but  so  regulate  your  expenses  that,  unavoid- 
able misfortunes  or  sickness  excepted,  you  shall  be  sure  to  save  at  least 
a  quarter  part  of  your  salary,  as  a  fund  for  old  age,  unless,  indeed, 


478  PRACTICAL  BANKING. 

your  patrimonial  estate  be  ample  for  sucli  a  purpose.*  But,  whatever 
be  your  receipts  or  expectations  from  other  sources,  do  not  allow  your 
expenditures  to  exceed  your  personal  earnings.  Be  this  the  great  eco- 
nomic maxim  of  your  life. 

Economy  is  the  parent  of  honesty,  of  freedom,  and  of  mental  ease 
and  quiet.  Poverty  can  never  enter  your  abode,  if  content  with  satis- 
fying your  real  wants;  while  you  will  never  enjoy  independence,  if 
you  live  in  accordance  with  the  world's  caprice.t  If  you  possess  an 
inordinate  craving  for  great  wealth,  or  a  desii'e  to  indulge  in  luxuries 
and  amusements  such  as  men  of  fortune  alone  can  afford,  you  have 
mistaken  your  profession,  and  should  abandon  it.  For  your  life,  if  you 
remain  in  it,  will  be  a  perpetual  struggle  against  your  natural  inclina- 
tions; and  the  danger  is,  that,  finally  yielding  to  them,  you  will  involve 
yourself  in  irretrievable  woe. 


*I  designed  to  say  a  word  in  the  text  on  the  subject  of  salaries.  As 
a  general  rule,  the  compensation  to  bank  officers  is  too  small.  Accord- 
ing to  a  return  to  Parliament,  in  1832,  the  number  of  persons  employed 
in  the  Bank  of  England  and  its  branches,  was  nine  hundred  and  forty, 
Avho  (to  average  the  salaries)  received  only  £225,  or  about  eleven  hun- 
dred dollars  each,  per  annum.  Since  several  who  filled  the  higher  posts 
were  paid  very  much  larger  sums,  it  is  evident  that  a  considerable  part  of 
this  numerous  corps  could  not  have  received  more  than  a  moiety  of  the 
above  average.  Yet,  as  at  the  same  time  there  were  one  hundred  and 
ninety-three  on  the  pension  list  who  enjoyed  annually  ion  the  average) 
£161,  or  about  eight  hundred  dollars  each,  the  faithful  officers  of  that  in- 
stitution who  were  then  in  actual  service,  could  hope  for  relief  in  their 
declining  years.  In  the  United  States,  the  system  of  pensions  is  not, 
perhaps,  practicable  or  desirable.  But  since  marriage,  a  flock  of  little 
ones,  the  owning  of  a  house  unincumbered  with  mortgage,  and  a  choice 
collection  of  books,  are  all  Virtue's  sentinels,  directors  ought  always  to 
have  I'eference  to  the  support  of  a  family  in  fixing  the  compensation  of 
their  executive  officers.  Indeed,  such  officers,  like  capable  and  faithful 
men  in  other  pursuits,  should  be  allowed  to  provide  something  for  old 
age.  It  is  fair,  I  suppose,  to  assume  that  the  expense  of  the  executive 
department,  as  a  common  thing,  is  not  far  from  one  per  cent,  on  the 
capital  stock,  or,  in  the  proportion  of  one  thousand  dollars  salary  to  one 
hundred  thousand  dollars  capital.  If  this  be  so.  it  is  manifest,  at  a 
glance,  that  a  large  part  of  the  bank  officers  in  the  United  States  (as 
gentlemen  are  now  compelled  to  live  both  in  city  and  country)  are  re- 
quired to  consult  the  maxims  of  "Poor  Richard"  every  day  in  order  to 
secure  a  moderate  competence.  The  interests  of  stockholders  are  not 
promoted  in  the  long  run,  by  low  salaries,  for  low  salaries  not  infre- 
quently, as  experience  shows,  induce  speculations  in  stocks,  and  other 
irregularities,  which  terminate  in  defalcations.  As  a  class,  bank 
officers  are  not  so  well  paid  as  officers  of  railroads  and  manufacturing 
establishments.  Avhile  their  duties  are  quite  as  responsible. 

tThe  great  English  banker.  Thellusson.  who.  at  one  time.  M'as  part- 
ner with  Mr.  Neckar,  the  celebrated  French  financier,  left  three  sons, 
and  a  fortiine  of  three  and  a  half  millions  of  dollars,  which  estate,  he 
said,  he  acquired  by  "industry  and  honesty."  In  his  will  he  remarks: 
"It  is  my  earnest  wish  and  desire  that  my  sons  avoid  ostentation, 
vanity,  and  pompous  show,"  etc.  The  three,  it  may  be  added,  became 
members  of  the  House  of  Commons,  and  the  eldest,  a  peer  of  the  realm. 


SUGGESTIONS  TO   YOUNG   CASHIERS.  479 

Tho  road  to  disgrace  Is  short.  Persous  who  have  traced  the  foot- 
steps of  more  than  oue  unhappy  br nk  ofticer  that  has  trodden  it,  have 
found  that  extravagance  and  defalcation  were  but  a  few  strides  apart.* 
A  sensual  man  is  disqualified,  by  his  very  physical  organization,  for 
any  office  in  the  executive  department  of  a  banlc,  and  ought  no  more 
to  be  there  than  in  a  pulpit.  I  make  the  remark  considerately— for 
good  reasons— and  not  to  round  out  a  period.  And  should  this  essay 
meet  the  eye  of  the  father  of  a  son  ready,  by  age  and  education,  to 
enter  upon  some  employment.  I  venture  to  counsel  that,  if  banking 
be  thought  of.  the  moral  qualities  and  the  strength  of  the  appetites,  as 
developed  in  the  early  life,  are  the  first  things  to  be  considered.  The 
youth  who,  in  childhood,  stole  slyly  to  the  closet  for  his  mother's 
sweetmeats,  Avho  was  never  content  at  table  with  the  share  of  niceties 
allotted  to  him,  who  shirked  his  known  tasks,  and  imposed  their  per- 
formance upon  a  younger  and  more  dutiful  brother,  and  who,  as  years 
wore  on,  evinced  a  disposition  to  rely  upon  others,  and  to  earn  nothing 
for  himself,  but  yet  who  showed  a  determined  purpose  to  feed  on  the 
best,  and  to  dress  in  the  finest— such  a  youth,  though  as  quick  at  figures 
as  Colburn  himself,  should  never  be  placed  in  a  l)ank. 

"Speculation  in  stocks"  is  another  fruitful  source  of  ruin,  and  I 
cannot  forbear  a  word  of  admonition.  The  careful  investment  of  your 
earnings  or  patrimony,  and  a  similar  service  for  friends  and  custom- 
ers, define,  in  my  judgment,  the  general  limits  of  your  operations  in  the 
stock  market.  To  say  nothing  of  the  hopes  and  fears  consequent  upon 
the  adventures  of  a  dealer,  and  nothing  of  their  influence  upon  your 
mind  and  temper— already  suflicieutly  tasked— I  may  ask,  in  all  serious- 
ness, what  assurance  have  you,  what  assurance  can  you  have,  that 
your  virtue  will  resist  the  temptations  sure  to  beset  you?  Once  em- 
barked and  afloat  on  the  stock  exchange,  either  alone  or  with  partners, 
you  cannot  move  without  means:  and  who  shall  answer  for  the  money 
intrusted  to  your  care  ?    Who  shall  answer  that  you  will  not  "borrow"' 


*"The  London  banker  of  the  old  school."  says  Mr.  Lawson,  "had 
little  resemblance  to  the  modern  gentleman  who  is  known  by  the  same 
title.  He  was  a  man  of  serious  manners,  plain  apparel,  the  steadiest 
conduct,  and  a  rigid  observer  of  formalities.  As  you  looked  in  his  face, 
you  could  read  in  intelligible  characters  that  the  ruling  maxim  of  life, 
the  one  to  which  he  turned  all  his  thoughts  and  by  which  he  shaped 
all  his  actions,  was:  'That  he  who  would  be  trusted  with  the  money  of 
other  men  should  look  as  if  he  deserved  the  trust,  and  be  an  ostensi- 
ble pattern  to  society  of  probity,  exactness,  frugality  and  decorum.'  " 
And  further,  says  the  same  writer:  "The  fashionable  society  at  the 
West  End  of  the  town,  and  the  amusements  of  high  life,  he  never 
dreamed  of  enjoying,  and  Avould  have  deemed  it  nothing  short  of  in- 
sanity to  imagine  that  such  an  act  was  within  the  compass  of  human 
daring,  as  that  of  a  banker  lounging  for  an  evening  in  Fop's  Alley  at 
the  opera,  or  turning  out  for  the  Derby  with  four  grays  to  his  chariot, 
and  a  goodly  hamper  swung  behind,  well  stuft'ed  with  perigord  pies, 
spring  chicken,  and  iced  champagne." 


480  PRACTICAL  BANKING. 

from  your  vault— as  others  have  done — feeling  sure  that  you  can  "re- 
turn" the  sum  you  need  "in  a  few  days  with  interest?"  At  the  outset 
you  will  not  "risk  much;"  you  desire  only  "to  gain  something  to  add  to 
a  moderate  salary."  But  encouraged,  at  length,  by  your  own  success  in 
small  operations,  or  excited  by  the  real  or  reported  good  fortune  of 
those  around  you,  the  resolution  may  be  formed  to  win  a  competence 
at  a  single  cast  of  the  die;  you  lose,  and  are  ruined!  Be  warned,  I 
entreat,  in  time.  No  bank  officer — in  charity,  we  may  believe — 
ever  meant  to  be  a  defaulter;  no  one,  at  the  beginning  of  an  irregular 
course,  thought  defalcation  and  disgrace  possible.  Yet,  alas  for  the 
many  victims  of  self-deception!  alas  for  the  self-confident,  and  for  those 
who  neglected  the  great  duty  of  self-examination!  Most  affectionately 
and  earnestly  do  I  charge  you,  as  you  value  your  peace,  as  you  would 
save  your  integrity,  as  you  would  not  be  driven  forth,  a  brolven  and 
shunned  man,  to  resist  every  seduction  of  avarice  from  within,  and 
every  solicitation  of  companions  from  without.  No  matter  what 
pretense  or  excuse  a  stifled  conscience  may  allow  you  to  fi'ame. 
the  cash  in  your  vault  is  not  your  cash  and  you  touch  it  for  your 
private  benefit,  or  x'elief  even,  as  a  robber,  and  at  the  peril  of  your 
soul!  Think,  ere  you  yield,  of  the  long  roll  of  sad-faced  men  who 
once  were  honored  and  trusted,  but  who,  when  tempted,  fell!  Think  of 
those  who,  wrecked  in  character,  in  fortune,  and  in  hope,  have  become 
bloated,  ragged  wanderers!  Think  of  those  of  whom  fathers  and  moth- 
ers, and  even  wives  and  children,  dare  not  speak  save  in  whispers,  and 
at  the  family  fireside!  Think  of  those  who  have  been  hurried  to  the 
prisons  and  to  the  tribunals!    Think  of  the  graves  of  the  suicides! 

A  single  warning  more,  and  I  pass  to  less  painful  topics  of  dis- 
course. Allow  no  customer  to  overdraw  his  account  upon  your  own 
responsibility  or  without  the  express  sanction  and  authority  of  di- 
rectors.* The  habit  is  a  bad  one,  every  way,  under  any  circumstances; 
and  I  wish  it  could  come  to  an  end  at  once,  everywhere  and  forever. 
But  if  it  be  permitted  in  particular  cases  in  your  bank,  have  neither 
part  nor  lot  in  the  matter,  save  to  execute  a  positive  order.  Discourage 
the  practice  in  every  possible  manner,  and  if  fortunate  enough  to  put 
an  end  to  it,  you  will  deserve  the  praise  of  every  correct  banker  in  the 
country.  At  your  post,  and  in  bank  hours,  you  are  to  have  no  friends 
to  indulge  with  favors,  no  enemies  to  punish  with  refusals.  Then  and 
there  all  men  should  be  alike  to  you.  The  motto  of  the  Banker's  Mag- 
azine should  be  yours,  without  reservation  or  condition.!  In  fine,  per- 
form no  act  that  you  would  omit  in  the  presence  of  the  full  "Board," 


*I  believe  that  no  customer  of  the  Bank  of  England,  whatever  his 
rank,  is  allowed  to  overdraw. 

+  "No  expectation  of  forbearance  or  indulgence  should  be  encour- 
aged. Favor  and  benevolence  are  not  the  attributes  of  good  banking. 
Strict  justice  and  the  rigid  performance  of  contracts  are  its  proper 
foundation." 


SUGGESTIONS  TO  YOUNG  CASHIERS.  481 

or  in  that  of  the  sureties  on  your  official  bond.  This  rule  will  carry  you 
safely  through  every  difficulty  and  every  temptation. 

Pardon  me  if  I  now  suggest  the  importance  of  maintaining  a  repu- 
tation for  strict,  exact  veracity.  An  aged  judge  is  said  to  have  re- 
marked, ironically,  that  "half  the  cases  he  had  tried  on  the  bench 
arose  from  good  understanding  between  the  parties;"  and  bj'  this  he 
meant,  that  half-made  bargains  and  agreements  lead  to  disagreements 
and  litigation.  Avoid  misunderstandings  from  this  source.  Many,  in- 
deed most,  of  your  transactions  will  be  upon  verbal  contracts.  But 
you  may  use  words  so  terse,  so  precise,  that  misconception  will  be 
hardly  possible. 

The  honor  of  a  cashier  and  the  honor  of  a  woman  are  alike.  Sus- 
picion of  either  in  the  public  mind  is  as  fatal  to  reputation  as  con- 
victed guilt.  Stand  by,  stand  for  your  honor,  then,  against  all  comers, 
and  to  the  last.  Preserve  your  own  respect,  though  you  be  fed  by 
the  hand  of  public  or  of  private  charity.  Napoleon,  at  the  hour  of 
his  downfall,  deposited  the  remains*  of  his  fortune  with  Laffitte,  and 
refused  an  offered  and  customary  certificate,  saying:  "I  know  you 
—I  hold  you  to  be  an  honest  man."  The  Paris  banker,  in  the  course 
of  events,  became  a  cabinet  minister;  but  such  a  testimonial  to  his 
probity  from  a  man  whose  estimate  of  human  virtue  Avas  too  low  to  be 
just,  and  who.  at  the  moment  he  uttered  it,  was,  as  he  imagined,  the 
victim  of  faithlessness  and  treachery,  will  be  remembered  when  the 
records  of  his  political  honors  are  torn  and  scattered.  But  yet,  any 
man,  in  liis  own  circle,  may,  if  he  will,  have  it  said  of  him:  "I  know 
you— I  hold  you  to  be  an  honest  man."  My  young  friend— now  starting 
upon  a  banker's  career — burn  these  words  deep  into  your  memory  I 

As  in  some  things  there  are  marked  distinctions  between  banks  in 
different  sections  of  the  country,  and  between  country  and  city  banks 
in  the  same  State,  and  corresponding  differences  in  the  duties  of  a 
cashier,  it  is  obvious  that  no  series  of  "suggestions"  can  be  alike 
applicable  to  all.  But  I  may  still  hope  that  the  young  and  inexperienced 
officer  will  not  fail  to  find  some  useful  hints  in  the  preceding  remarks, 
whatever  his  particular  position  or  special  charge. 

And  while  this  may  be  so,  the  country  cashier  may  yet  need  cau- 
tions and  recommendations  adapted  to  his  peculiar  official  and  social 
relations.  Such,  then,  as  I  deem  the  most  important,  I  shall  briefly 
and  respectfully  offer.  First,  as  it  sometimes  happens  that  the  per- 
son selected  for  the  executive  department  has  had  little  or  no  experi- 
ence in  banking,  and  is  to  be  connected  with  directors  whose  knowledge 
is  as  limited  as  his  own,  the  dutj'  of  consulting  well-informed  officers 
of  city  banks  is  manifest.  The  country  cashier  is  often  alone.  With- 
out paying  or  receiving  tellers,  bookkeeper,  or  discount  or  collection 
clerks,  but  invested  with  the  functions  of  all,  skill,  system,  and  an 


*Five  millions  of  francs. 


482  PRACTICAL   BANKING. 

ecouomical  use  of  time,  are  indispeusable  to  success.  I  have  known 
gentlemen  Avho,  though  possessing  quick  and  clear  perceptions,  and 
almost  every  other  natural  endowment,  were  still,  at  the  time  of  their 
election,  incapable  of  opening  or  of  properly  keeping  a  single  bank-book. 
Some  of  these,  remarkably  cautious  in  their  habits  of  business,  and 
profiting  by  mishaps,  escaped  serious  losses,  and.  in  the  end,  became 
accomplished  officers;  while  others,  more  sanguine  in  temperament,  and 
more  self-confident,  and  unwilling  to  seem  novices,  involved  themselves 
in  difficulties  which  caused  them  much  mental  disquietude  and  pecuni- 
ary embarrassment.  Now,  it  is  apparent  at  a  glance,  that  both  classes, 
had  they  started  right,  might  have  avoided  a  great  deal  of  painful 
experience. 

I  commend  to  you.  therefore,  if  not  bred  to  banking,  the  sources  of 
information,  which  are  open  to  you.  and  to  all  who  desire  to  increase 
their  knowledge.  Accuracy  in  the  count  of  money  is  the  first,  accuracy 
in  the  keeping  of  accounts  is  the  second,  qualification  in  a  country 
cashier;  and.  while  you  may  acquire  the  first  by  practice,  you  may  go 
wrong  with  your  records  all  your  life. 

A  small  l)ank  should  be  conducted  on  a  plan  as  systematic  and  as 
regular  as  a  large  one.  Experience  has  shown,  I  think,  that  bank  ac- 
counts should  be  kept  in  "double  entry."  and  that  each  department  of 
bank  business  requires  a  separate  book.  Thus  in  an  institution  with  a 
capital  of  only  fifty  thousand  dollars.  I  consider  that  a  general  and 
deposit  ledger,  that  books  for  cash,  deposits,  discounts,  credits,  col- 
lections and  trial-balances,  are  as  essential  as  in  one  of  a  million  of 
dollars.  And  the  same  remark  is  true  of  stockholders'  and  directors' 
records,  of  a  book  to  show  the  state  of  the  bank,  and  of  another  to  ex- 
hibit the  paper  to  mature  in  any  given  week. 

The  general  and  the  deposit  ledger  may  be  one;  the  former  occn- 
pying  some  seventy-five  or  one  hundred  pages,  and  embracing  accounts 
with  things,  the  latter  with  persons.  The  cash  should  be  settled  daily 
at  the  close  of  business,  when,  also  a  trial  balance  should  be  taken  of 
the  general  ledger  postings.  On  the  last  business  day  of  the  month, 
the  depositors'  accounts  should  be  adjusted,  and  the  balance  of  each 
be  transferred  to  the  trial-balance  book  to  ascertain  whether  the  de- 
posit ledger  has  been  correctly  posted.  The  daily  settlement  of  the 
cash— neglected  in  some  country  banks,  unless  the  reform  has  been 
very  recent— need  occupy  but  a  few  minutes,  since  a  vault  book  ac- 
curately kept,  leaves  for  actual  count  the  cash  in  drawer  only.  "Mem- 
orandum checks,"  and  similar  vouchers— to  say  notliing  of  the  grave 
consequences  which  sometimes  result  from  their  use— are  great  pests 
in  a  cashier's  drawer,  and  should  not  be  allowed  there,  except  In  the 
most  urgent  cases.  Some  cashiers  keep  "ragged  bills,"  never  intended 
to  be  reissued,  in  vault  for  months,  and  even  years;  but  the  practice 
is  attended  with  obvious  risk  and  inconvenience,  and  should  not  exist. 

As  already  intimated  in  another  connection,   your  directors,   how- 


SUGGESTIONS  TO   YOUNG   CASHIERS.  483 

ever  worthy  ami  respectable  as  citizens  aud  gentlemen,  may  be  poorly 
versed  in  the  seieuoe  of  banking,  and  may  not,  at  tirst,  appreciate 
the  force  aud  the  reason  of  the  rules  which  you  deem  necessary  to 
adopt  in  transactions  with  them  and  with  others.  But  evince  no  im- 
patience. I  assume  that  a  majority  of  any  and  of  every  "board"  are 
men  of  honor,  and  mean  to  do  right;  and  that,  in  explanations  and 
conversations  with  yours,  you  have  but  to  calmly  point  out  the  evils 
likely  to  arise  from  a  course  opposite  to  that  which  you  insist  upon,  to 
obtain  their  approbation.  Yet  you  yourself  should  be  well  assured 
that  these  rules  are  consonant  to  law,  or  are  such  as  are  imposed  in 
well-regulated  banks,  or  su<h  as,  in  your  peculiar  position  and  relatiouh'. 
are  imperatively  demanded. 

It  is  possible  that  your  predecessor  allowed  improper  indulgences 
to  a  particular  director,  or  had  favorites  among  your  customers,  aud 
that  you  will  feel  constrained  to  put  an  end  to  these  and  to  similar 
irregularities.  To  accomplish  this,  in  harmony,  will  require  all  the 
wisdom  aud  good-nature  that  you  can  commaud.  It  is  possible,  too, 
that  overtures  may  be  made  to  you  to  grant  favors  inconsistent  with 
your  duty;  but,  as  such  cases  will  arise  from  thoughtlessness  or  ignor- 
ance, as  often  as  from  unworthy  motives,  you  should  be  silent,  ex- 
cept when  corrupt  intentions  are  too  apparent  to  be  mistaken,  or  the 
importunities  of  the  same  person  become  so  frequent  as  to  be  trouble- 
some. 

The  customers  of  a  country  l)ank,  unlike  the  merchants  of  large 
and  busy  cities,  expect  of  the  cashier  some  inquiries  about  their  fam- 
ilies, aud  remarks  upon  the  news  of  the  day,  upon  the  crops,  the 
weather,  aud  other  matters  of  personal  or  local  interest.  To  a  reason- 
able exteut  this  expectation  should  be  gratified.  But  discussions  across 
your  counter  on  topics  of  sectarian  theology  and  party  politics  are  to 
be  avoided— entirely  avoided.  Nor,  if  you  hear,  should  you  reply  to,  or 
take  part  in,  tales  of  scandal  and  neighborhood  gossip.  Polite  to  all. 
sociable  to  a  degree  not  to  interfere  with  your  duties,  inviting  and 
giving  friendly  greetings,  your  deportment  is  yet  to  be  dignified,  and 
such  as  becomes  a  well-bred  gentleman. 

You  will  transact  business  with  persons  who  cannot  even  write  a 
note  of  hand  in  proper  form;  with  those  who  cannot  be  made  to  ac- 
knowledge the  necessity  of  a  notice  to  an  indorser;  and  with  those  who 
will  pertinaciously  insist  upon  having  their  own  way,  whatever  your 
reasoning  or  objections  to  the  contrary.  Teach  the  ignorant,  without 
giving  them  pain;  be  firm  with  the  self-willed,  without  evincing  im- 
patience or  anger;  for  the  smart  of  a  sharp  word,  or  of  a  proud  toss  of 
the  head,  is  sometimes  felt  for  years.  "Contempt,"  says  an  Eastern 
proverb,  "will  penetrate  the  shell  of  a  tortoise;"  be  sure  to  remember 
it  will  pierce  deeper  into  the  epidermis  of  a  fellow-man. 

To  require,  and  to  insist  upon,  regular  bank  hours  will  occasion 
some  difficulty  in  some  places.  People  whose  business  at  banks  is  rare, 
seem  to  forget  that  a  cashier,  like  other  men,  has  a  love  of  fresh  air,' 


484  PRACTICAL  BANKING. 

or  that  he  needs  exercise  and  relaxation;  and  thus  cannot  or  will  not 
understand  why  he  is  not  ready  to  accommodate  them  early  in  the 
morning,  and  late  in  the  evening.  These  persons  seek  him  in  his 
moments  of  rest  and  recreation,  asli  him  to  receive  money  at  his  house, 
or  in  the  village  stores,  and  complain  if  he  refuses  such  reasonable  re- 
quests. You  will  be  unjust  to  yourself  if  you  submit  to  these,  or  to 
similar  demands.  The  intervals  between  bank  hours  are  yours  by  posi- 
tive contract,  and  by  the  very  necessities  of  your  physical  and  mental 
being.  Do  not  permit  inroads  upon  them,  save  in  extraordinary  ex- 
igencies; in  these,  leave  your  bed  even,  to  serve  a  customer.  Still,  as 
loose  and  unsafe  habits  may  have  been  encouraged  by  your  prede- 
cessors, or  countenanced  by  directors,  measures  of  reform  will  be  odious 
unless  gradual.  Tnder  kind  and  considerate  treatment  your  laggards 
may  become  punctual,  and  untimely  requests  to  open  your  vault  en- 
tirely cease. 

A  single  "suggestion"  more.  The  private  and  social  relations  of  a 
country  cashier  are  of  consequence,  and  ought  not  to  be  overlooked. 
And,  first,  a  salary  officer,  under  ordinary  circumstances,  needs  not  to  be 
in  debt  for  his  personal  or  family  expenses;  and,  as  cash  payments  are 
sure  to  show  whether  he  is  "living  beyond  his  means,"  may  I  not  com- 
mend the  safe  rule  of  "paying  as  you  go?" 

Again,  may  I  not  be  allowed  to  suggest  the  duty  of  constant  attend- 
ance at  church,  even  though  you  cannot  worship  with  persons  of  your 
own  faith;  and  also  of  manifesting  an  interest  in  schools,  public  lectures 
lyceums,  and  other  means  employed  to  promote  the  welfare  of  society? 
The  community  in  which  you  live  has  a  claim  upon  you,  not  only  for 
an  exemplary  life,  but  for  contributions  of  money  in  proportion  to  your 
ability,  to  aid  in  the  maintenance  of  the  religious,  literary  and  benev- 
olent associations  established  among  them. 

To  conclude.  Should  it  be  thought  that  I  might  have  omitted  the 
discussion  of  some  topics,  and  have  treated  others  with  greater  brevity, 
I  submit,  with  deference,  that  I  have  endeavored  to  be  a  careful  ob- 
server. More  than  twenty-five  years  have  elapsed  since  the  commence- 
ment of  my  connection  with  banks  and  banking;  and,  as  I  now  look 
back  and  recall  the  facts  elicited  by  judicious  inquiry,  and  the  facts  em- 
braced in  other  well-authenticated  accounts  which  relate  to  bank  of- 
ficers who  have  fallen,  never  again  to  rise,  or  whose  lives  have  been 
saddened  and  eml)arrassed  by  want  of  firmness  in  resisting  the  allure- 
ments of  pleasure,  or  the  solicitations  of  the  companions  of  their  social 
hours— by  an  overweening  self-confidence— by  too  great  faith  in  others; 
as,  too,  I  remember  the  complaints  against  another  class,  who,  though 
without  a  moral  stain,  have  still  injured  themselves  and  the  institutions 
with  which  they  are  concerned  by  churlishness  and  irritability;  I  find 
no  cautions  and  admonitions  to  omit,  no  recommendations  that  may  not, 
I  think,  assist  in  forming  the  character  of  the  officer  for  whom  these 
suggestions  are  intended. 


SUGGESTIONS  TO  YOUNG  CASHIERS.  485 

A  single  word  more.  Mauy  of  the  cashiers  whose  private  virtues 
and  professional  ability  adorn  the  annals  of  banking  in  the  United 
States,  receive  salaries  nearly  equal  to  the  emoluuieuts  of  cabinet  min- 
isters, or  military  officers  of  the  hightest  rank,  and  are  intrusted  with 
powers  so  ample,  that  they  seem  to  be  private  bankers,  wielding  their 
own  capital.  These  gentlemen  have  attained  the  crowning  honors  of 
their  profession.  Let  the  "'j'oung  cashier"  aim  to  reach  the  same  emi- 
nence among  men  and  among  bankers.  Let  him  remember  that,  what- 
ever the  influence  of  friends  at  the  outset  of  his  career,  his  position  in 
the  maturity  of  his  years  must,  in  the  very  nature  of  things,  depend 
upon  himself,  upon  his  capacity,  his  courage,  and  his  probity. 

I  have  here  spoken  to  him  as  to  my  only  son,  and  take  my  leave, 
in  the  earnest  hope  that,  in  the  labors  of  some  one  of  his  seniors,  com- 
municated to  the  "Magazine"  upon  the  invitation  which,  perhaps,  I  have 
unwisely  accepted,  he  will  be  sure  to  find  a  path  marked  out  for  him 
which  will  lead  him  to  the  rewards  of  a  well-spent  life. 


INDEX. 


B 

PAGE 

Bank  of  North  America— History  of 7 

Bank  of  United  States— History  of S:  10-12 

Banker— Definition   of 4 

Bankiiif?- As  a  profession 463 

Banks— Orisjin    of 3 

riassitication    of 4 

Utility    of 4 

History  of   7-20 

How    organized 21-34 

State   banks 252 

Advantages  of  (See  Organization) 253 

Bank  Reserve.- See  Reserve. 

Bonds.— What  bonds  a  bank  nuist  have 34,  39 

Object  of  registering  them 49 

Books.— Mode  of  keeping  bank  books 209-240 

Deposit    slip 211 

Pass-book     212 

Depositors'  ledger 212,  223 

Stock  ledger 214,   215 

Journal    21G 

Offering  book 218,   227 

Teller's  daily    balance 220 

Receiving  Teller's  check-book 220 

Collection    register 221 

Domestic  tickler 221-222 

Credit    .Journal 224 

Debit  .Tournal 225 

Discount    register .220 

Deposit  .Tournal  228 

New  York  or  Boston  System , 229 

(487) 


488  PRACTICAL  BANKING. 

PAGE 

Books.— Eagar  system   236 

Loose  leaf  ledger 238 

Reconcilement    sheets 239 

List  of  books  on  banking 431 

By-Laws.— Suggestions  for  additional  by-laws 167 

c 

Cashier.— His    rank 135 

His  duties   135-140 

His  bond   136 

Circulation    49 

Amount  that  may  be  received 34 

How  notes  are  made 52 

Designs  53 

Bank  of  England  notes 52 

Record  of  issues  should  be  kept 55 

Mode  of  printing  them 56 

Redemption   57 

Lost  notes 57 

Clearing-House.— Origin  and  history  of 345-352 

Statistics  of  348,  352 

Mechanical  arrangements 353 

Preparation  of  the  exchange 355 

How  clearings  are  made 360 

How  outside  banks  make  clearings 365 

How  balances  are  paid 367 

Issues  of  Clearing-house  certificates 370 

Records  of  clearing-houses   373 

Fines    377 

History  of  New  York  clearing-house 378 

Operations  of  other  clearing-houses 383 

How  foreign  clearings  are  made 305 

Country  clearings  405 

Collections.— How  they  are  made 188-201 

Charges  for  198 

Correspondence.— How  it  is  conducted 202-204 

Country  Banking 250-262 

D 

Depositor.— He  should  examine  his  pass-book  and  checks  after 

their  return  from  bank 162 

Advice  to  (See  Deposits) 467 


INDEX.  489 

PAGE 

Deposits.— Kinds  of 62 

Growth  of  banlvs G3 

Payment  of  interest  on G7-G0 

Certificate  of  deposit 09 

Depositor's  signature  is  required 70 

Irregular  depositors  71 

Women  depositors   72 

Legal  relation  between  banlc  and  depositor 72 

Directors.— Their  action     : .  . .  .  70 

Their  attendance  77 

Duties  and  liabilities 78 

They  can  act  only  as  a  board 81 

Discounting    87 

Character  of  paper  discounted 89 

Elements  of  a  note 90 

Drafts 92 

Call  loans    95 

Form  of  stock  notes 90 

Borrowers'  statements   103-109 

Bought  paper  113 

Effect  of  directors  objection  to  a  note  offered  for  dis- 
count     118 

E 

Exchange.— Dealings  in  243-251 

Discounts  of  bills  of 92 

N 

National  Banking  System.— History  of 15-20 

Note  Teller.— His  duties 180-183 

o 

OflBcers.- Election    of 46 

Organization  of  Banks.— Mode  of  raising  capital 21 

Articles    of    Association 24 

Subscx'ibers  20 

Who  ought  not  to  be  original  subscribers.  .  26 

Organization  Certificate  27 

Certificates  of  officers  and  directors 29 

How  capital  must  be  invested 30 

Comptroller's  certificate  30 

By-laws    30 

Capital  of  national  bank 34,  39 


490  PRACTICAL  BANKING. 

P 

PAGE 

Pass-Book.— Depositor  should  make  examination  after  its  return 

bank   162 

Paying  Teller.— His    duties 141-168 

How  a  cbeck  should  he  made 143 

How  it  should  be  signed 145 

What  teller  must  consider  in  paying 146 

Forged   checks    148 

Payment  through  clearing-house 153 

Effect  of  drawer's  death 155 

Stale  checks 156 

Stopping  payment  of  checks 157 

Certifying  checks 158,  170 

Raised  checks  189 

Paying  teller's  proof 165-166 

Porter    241 

Power  of  Attorney.— Form  of 41,  46 

President.— His   duties    122-134 

Salary 122 

Private  banks   255 

Country   banks    259 

R 

Receiving  Teller,— His  duties    169-179 

Reclamations    171 

Mode  of  distinguishing  good  and  bad  money.  . .  .172 
Light  weight  coins 175 

Reports 321 

Reserve.— Mode  of  keeping  and  reckoning  a  national  bank  re- 
serve     205-208 

Reserve  cities 205 

Runner    241 

s 

Savings  Banks.— Their  utility 265 

Janitor    271 

Depositor    272 

Mode  of  depositing 273 

Mode  of  withdrawing  deposits 336-342 

Duties  of  receiving  teller 279-284 

Duties  of  paying  teller 285-288 

Duties  of  book-keeper 289-293 


INDEX.  491 

PAGE 

Savings  Banks.— Duties  of  treasurer 294-298 

Duties  of  secretary 290-313 

Duties  of  board  of  trustees 31o-317 

Duties  of  attorney 318-320 

Reports    321 

How  investments  should  be  made 326 

How  business  is  conducted  by  a  small  savings 

banli    332 

Shareholders.— Certificate  35,  37,  38 

Payment  for  stock 3G 

Liability  of  37 

Transfer  of   certificate 39-40 

Stock  book   39 

Lost  certificate 41 

Annual  meetings    46 

State  Banks.— History  of 10-20 

State    Supervision 321 

T 

Trust  Companies.— History  of   413 

How  the  business  is  conducted 415 

Power  of  trust  companies 422 

V 

Venice.— History  of  bank  of 3 


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